Sixteen House Democrats have asked the Federal Housing Finance Agency to justify its position on reducing principal on loans owned by Freddie Mac and Fannie Mae. Elijah Cummings (D-MD), ranking member of the House Committee on Oversight and Government Reform and the 16 Democratic members of the committee sent a letter to FHFA Acting Director Edward DeMarco Wednesday seeking documents he promised the Committee regarding his analysis of programs to reduce mortgage principle.
DeMarco allegedly told members of the Committee at a hearing on November 16 "We have been through the analytics of the underwater borrowers at Fannie and Freddie, and looked at the foreclosure alternative programs that are available, and we have concluded that the use of principal reduction within the context of a loan modification is not going to be the least-cost approach for the taxpayer." When a committee member pointed out that several banks are already implementing principal reduction programs in an attempt to help delinquent or underwater homeowners and citing specific examples, DeMarco said "I believe that the decisions that we've made with regard to principal forgiveness are consistent with our statutory mandate." DeMarco then committed to providing documentation of that statutory authority to the Committee.
In a letter sent to DeMarco on Wednesday, the Cummings essentially reminded DeMarco of his agreement to provide the Committee with "(1) the specific statutory provision you believe prohibits the Federal Housing Finance Agency (FHFA) from allowing Fannie Mae and Freddie Mac to reduce mortgage principal in all cases; and (2) the analysis you conducted, including the data you examined, demonstrating that principal reduction never serves the long-term interests of the taxpayer when compared to foreclosure." DeMarco was asked to provide the information no later than December 9.
The letter cites specific instance of bank programs providing principal reduction. One program at Ocwen allows a servicer to reduce a loan to 95% of a home's fair market value, forgiving the excess principal over three years as long as the homeowner remains current on mortgage payments. When the home is sold or refinanced Ocwen receives a 25 percent share of any appreciated value. Wells Fargo has reportedly reduced the balances of 73,000 mortgages by an average of $51,000. Other banks cited as having principal reduction programs are JP Morgan Chase, Ally Financial and Bank of America.
Cummings said of the Committee members' request, "For too long now 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. Even though commercial banks have implemented their own principal reduction programs, FHFA stubbornly continues to favor massive waves of foreclosures. It's high time to see the actual data and analyses behind this policy, and to work towards new approaches that finally put American homeowners and our nation's economy first."
