The regulator of Fannie Mae and Freddie Mac says it would cost $100 billion to reduce the principal for its underwater homeowners to the value of their homes, according to a letter to a Congressman released Monday.
In November, Rep. Elijah Cummings, a Maryland Democrat and the ranking member of the Committee on Oversight and Government Reform, asked the Federal Housing Finance Agency to produce documents explaining why it doesn't use principal reduction as a method of foreclosure prevention.
“For too long now,” Cummings said in a public statement at the time, “we have heard superficial excuses about why principal reduction programs are not feasible at Fannie Mae and Freddie Mac, despite a growing chorus of economists and other experts who believe these programs serve the long-term interests of taxpayers."
Fannie and Freddie, government-sponsored entities created to add liquidity to the mortgage market, own more than 30 million mortgages, about half of the U.S. market.
In response, acting director Edward J. DeMarco cited several staff analyses to conclude that principal forgiveness costs the taxpayer more than principal forbearance, which defers payments and adds them to the balance of the loan.
As of June 30, GSEs had about 3 million underwater mortgages, DeMarco wrote. Reducing the principal of all those loans to the homes' value would cost $100 billion, which ultimately would come from taxpayers.
But of those 3 million mortgages, 80 percent of borrowers were current with their payments.
"Fannie Mae and Freddie Mac already offer a loan modification option that reduces monthly payments to an affordable rate using principal forbearance– the same monthly payment that would be in place with forgiveness - and this is most consistent with FHFA obligations as conservator," DeMarco wrote.
DeMarco noted that homeowners with privately owned mortgages are in worse shape: more likely to be underwater and more likely to be delinquent on payments.
Both Bank of America and Wells Fargo have said they offer principal reduction in some instances.
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2 comments:
How about helping those of us responsible homeowners who never miss a payment despite the fact our homes are worth less than what is owed? Complete and total BS if the government allows this. It's like the governor of Mississippi giving pardons to a bunch of convicts.
"Fannie and Freddie, government-sponsored entities created to add liquidity to the mortgage market, own more than 30 million mortgages, about half of the U.S. market."
A quiet, subtle admission that the Government helped lead the charge into the sub-prime lending movement which caused the financial meltdown, for which, they are now trying to put all the blame off on Banks and Wall Street!
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