Posted on Monday, December 20, 2010
Congressman Randy Neugebauer (R-Texas), House Financial Services Oversight subcommittee chairman, released a letter this week expressing concern about reports that the Obama administration is pressuring Fannie Mae and Freddie Mac to write down principal mortgages for borrowers.
Earlier this month, reports circulated that the government was encouraging the GSEs to take advantage of a Federal Housing Administration (FHA) initiative to reduce loan balances for borrowers who owe more on their mortgage than the home is worth. The program targets performing loans that are currently underwater.
Under the modification, Freddie and Fannie would agree to the FHA paying off the principal balance of a loan and writing the borrowers a new loan equal to at least 10 percent less than the original balance.
The initiative is optional, and thus far both GSEs have declined to take advantage of the program.
The letter, addressed to Federal Housing Finance Agency acting director Edward DeMarco, states that for Fannie Mae and Freddie Mac to agree to write down mortgage principal would be an enormous and unnecessary strain on taxpayer losses.
“We write to express serious concern regarding recent reports that the Obama administration is pressuring Fannie Mae and Freddie Mac to begin writing down mortgage principal in order to qualify underwater borrowers for lower-rate Federal Housing Administration (FHA) mortgages,” the letter reads.
It continues, “Fannie and Freddie’s participation in the FHA’s loan modification program would increase taxpayer losses – already approaching $150 billion – and run counter to the statutory obligation of the Federal Housing Finance Agency (FHFA) to minimize taxpayer exposure from the GSEs’ conservatorships.”
The letter also requests that before Fannie and Freddie decide to participate in any loan modification program that involves principal write-downs, they provide a full report detailing costs associated with the program.
Neugebauer says the report should include projections of taxpayer losses, administrative expenses, and an explanation of how participating in the program would be in the best interest of taxpayers.
DSNewsBy: Joy Leopold