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Congressmen Raise New Questions About FHFA Resistance to Principal Reduction

posted by Jean Braucher

The heat is cranking up on the seat of Edward DeMarco, acting head of the Federal Housing Finance Agency and a holdover from the last administration who has been standing in the way of a meaningful response to the mortgage crisis. FHFA is conservator of FannieMae and FreddieMac, owners or guarantors of a large percentage of US home mortgages, and thus in a position to direct the mortgage giants to take steps that would save taxpayers money, provide relief to struggling underwater homeowners, and revive the US economy. Congressmen Elijah Cummings and John Tierney yesterday released a smoking letter to DeMarco explaining that his agency's own analysis shows that a principal reduction program could save taxpayers $28 billion. http://democrats.oversight.house.gov/images/stories/Cummings_Tierney_DeMarco.pdf Even more revealing, they say a FannieMae whistleblower has disclosed that FHFA was poised to implement a pilot program along these lines just before the November 2010 election but then pulled back for political reasons. Things seem to be getting more interesting. Could we finally see some movement on this critical issue?

Comments

I'm fascinated by the resistance to principal reductions. As a real estate broker (28 years), I have been in favor of this since the crisis began. It would have done the following things:
1. STOPPED the crisis.
2. BENEFITED the taxpayers.
3. BENEFITED the borrowers.
4. BENEFITED the investors (pension funds and other bondholders).
Every person in the "money stream" would have benefited, EXCEPT the servicers and the banks that own the servicing companies.
The only reasons I can see that this has not been implemented is that there is a desire to "punish those irresponsible borrowers for borrowing too much," (which is the mantra that's often used), and a tremendously protective administration that favors banks over everyone else.

I am a holder of one of the "underwater" mortgages so I have a personal interest in this initiative. I purchased my current property based on a temporary inflated value at the settlement date.

After reading "Reckless Endangerment: How Outsized Ambition, Greed, and Corruption Led to Economic Armageddon" recently, I'm appalled that this situation has not been seriously addressed and corrected for responsible homeowners.

Besides Congressmen Elijah Cummings and John Tierney who released their February 8 letter to Mr. DeMarco at FHFA, who are the other Congressmen who supported this initiative to write down the principal on underwater mortgages as a move advocated to stabilize the housing market? I would like to contact my Congressmen directly to get this situation remedied.

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