Federal Housing Finance Agency (FHFA) Acting Director Edward DeMarco continues to refuse to consider allowing Fannie Mae and Freddie Mac to write down mortgage principal for borrowers with underwater mortgages.
The Los Angeles Times reports that DeMarco, in an appearance yesterday before the U.S. Senate Committee on Banking, Housing and Urban Affairs, insisted that the executives at the government-sponsored enterprises (GSEs) advised him that ‘they do not believe it is in the best interest of the companies’ to write down principal in order to reduce foreclosures related to underwater mortgages. DeMarco added that the FHFA had a ‘responsibility to find all prudent actions’ to prevent foreclosures, but that strategies including loan modifications, deferred payments and refinancing would be more effective for homeowners and would not increase the risks to Fannie Mae and Freddie Mac.
Mortgages that are owned or guaranteed by the GSEs – roughly 60% of the market – were not covered in the $25 billion foreclosure settlement reached on Feb. 9. Sen. Robert Menendez, D-N.J., noted a perceived disconnection between the FHFA's approach to the issue and the approach used by the banks involved in the landmark settlement.
‘In my view, the FHFA has shown a dismal lack of initiative in the housing crisis and needs to be far more aggressive in taking steps that can help both homeowners and taxpayers,’ said Menendez. ‘The banks are finding it profitable to give principal reductions to about 20 percent of their own loans while, ironically, the government isn't allowing principal reductions on any loans.’