Edward J. DeMarco, Acting Director of
the Federal Housing Finance Agency today again stated his opposition to
allowing Fannie Mae and Freddie Mac to participate in the Principal Reduction
Alternative (PRA) of the Home Affordable Modification Program (HAMP). DeMarco's agency which acts as conservator
for the two government sponsored enterprises (GSEs) has opposed principal
reduction on the part of the two companies despite growing pressure from
Congress and the Department of the Treasury.
In a letter to the Chair and Ranking
Member of the Senate Committee on Banking, Housing, and Urban Affairs DeMarco
rebuffed an offer to use funds from the Toxic Asset Relief Program (TARP) to
assist borrowers and said, "After much study, I have concluded the Fannie Mae
and Freddie Mac's adoption of HAMP PRA would not make a meaningful improvement
in reducing foreclosures in a cost effective way for taxpayers." He went on to say there are continued
improvements that can be made to the GSEs loss mitigation and borrower
assistance efforts, specifically naming the further streamlining of refinance
opportunities, enhancing the short sale process, and reducing lender
uncertainty that could inhibit new lending.
Treasury Secretary Timothy Geithner
told DeMarco in a letter released to the media that he was concerned about the
regulator's continued opposition and urged the acting director to reconsider
his decision. The Secretary said "I do
not believe it is the best decision for the country because, as we have discussed
many times, the use of targeted principal reduction by the GSEs would provide
much needed help to a significant number of troubled homeowners, help repair
the nation's housing market, and result in a net benefit to taxpayers.
Geithner called FHFA's numbers "selective"
and said that the agency's own analysis which it had shared with Treasury "has
shown that permitting the GSE's to participate in the program could help up to
half a million homeowners and save the GSEs $3.6 billion compared to standard
loan modifications. GSE participation,
he said, would save taxpayers as much as $1 billion on a net basis.
Geithner's letter was accompanied by a five page memorandum in which
Treasury staff lays out their case for principal reduction.
There has been increasing friction between the Obama Administration and
DeMarco over his handling of the conservatorships. DeMarco, a holdover from the Bush
Administration, has been acting director since 2009 because the Senate refused
to bring the current president's nominee to the floor for a vote. Administration insiders have blamed DeMarco
for thwarting many of the president's housing initiatives and there has been a
spate of on-line petitions organized by progressive political groups calling
for DeMarco's resignation.
In his letter DeMarco restated his conviction that principal reduction would
not support his agency's prime obligation as conservator; to preserve the
assets of the GSEs on behalf of taxpayers.
He said that the result of adopting the HAMP PRA for the GSEs could
result in benefits that could be either positive or negative for taxpayers but
any model-projected benefits could be offset by a number of costs and risks
including the implementation costs for the GSEs and the servicers, opportunity
costs, long term implications of weakening the reliability of the mortgage
contract, and delayed resolution of ongoing modification negotiations.
Tomorrow we will take a detailed look at the justifications laid out by DeMarco
and Geithner for their differing viewpoints and no doubt here reactions from
the administration and members of Congress.
From: Edward DeMarco
To: Tim Johnson and Richard Shelby
From: Tim Geithner
To: Edward DeMarco