|
 |
 |
|
Banks, GOP lawmakers fear top housing regulator moving to mortgage write-down
The banking industry is concerned that Edward DeMarco, the nation’s chief housing regulator, is moving toward a plan that would allow some homeowners to walk away from their mortgages.
Industry groups say that cutting the principal for borrowers who are “underwater” and owe more than their homes are worth would further weigh down the housing recovery.
“A broad principal reduction program would result in fewer investors who are willing to lend for housing finance, increased borrowing costs and tighter credit availability,” Keating said.
DeMarco, the acting director of the Federal Housing Finance Agency (FHFA), has come under pressure from Democrats and the Treasury Department to reduce mortgage principal. They argue the move would help struggling homeowners and save the government money in the long run.
But even with new data that back up those claims, DeMarco remains skeptical about the effects of implementing the program at Fannie Mae and Freddie Mac, the mortgage giants that the government has spent $150 billion keeping afloat.
Bankers argue that principal reductions through Fannie and Freddie would increase the liability for taxpayers and raise the cost of credit by creating incentives for borrowers to stop paying on their loans.
“The taxpayers’ cost for principal reductions generally exceeds the benefit created," Keating said.
“Recovery in the housing market is extremely important, yet there are more cost-effective and efficient options other than principal reductions for borrowers and American taxpayers," he added.
The National Association of Federal Credit Unions (NAFCU) also expressed opposition to principal reductions because the policy could "enable, allow or precipitate strategic defaults," the group said in a letter to DeMarco sent April 10.
"We are gravely concerned that incorporating principal forgiveness modification as part of borrower-assistance programs would create an incentive for at least some borrowers to strategically default, causing credit unions and their members significant losses that they will not be able to recoup," wrote Fred Becker, president and chief executive of the NAFCU.
Becker said strategically defaulting on loans is a problem in the housing market and is causing credit unions great difficulties.
"Credit unions would be more acutely affected by such losses because of their inability to tap into markets to raise capital in order to support revenue-generating programs that would offset the losses," Becker said.
Sen. Bob Corker (Tenn.), a Republican member of the Senate Banking, Housing and Urban Affairs Committee, also urged DeMarco to resist the pressure to reduce mortgage principal.
"The last thing the federal government should be doing is taking taxpayer money and creating a program that incentivizes homeowners to not pay their mortgages,” Corker wrote in a letter sent this week.
Corker criticized Treasury for taking money from other funds and using it "to forcibly push principal reduction loan modifications" at Fannie and Freddie.
"While you have been put into a difficult situation by Congress and the Treasury Department, please know that I will be working hard to convince my colleagues in the Senate to finally act responsibly and to give you long-term direction for Fannie and Freddie," Corker wrote.
"It is growing more and more clear to me that as long as these government-sponsored enterprises exist in their current forms, the administration and Congress will use them to pursue misdirected initiatives like this," Corker said.
During a speech at the Brookings Institution this week, DeMarco said FHFA's recent reexamination of reducing mortgage principal for underwater borrowers found it could save the mortgage giants upward of $1.7 billion. The plan analyzed was put forward by the Treasury Department as part of the Home Affordable Mortgage Program (HAMP).
DeMarco signaled a willingness to consider the policy based on further review, which is expected by the end of the month, but emphasized that the larger group of underwater borrowers who are paying their mortgages "are the much greater contingent risk to housing markets and to taxpayers."
“A key risk in principal forgiveness targeted at delinquent borrowers is the incentive created for some portion of the current borrower population to cease paying in search of a principal forgiveness modification,” he said.
He argued that even if the agency chooses to move forward, reducing principal would affect fewer than 1 million homeowners, a fraction of the estimated 11 million who are underwater on their loans nationwide.
The FHFA estimates of the Treasury plan show that about 691,000 eligible homeowners would receive, on average, about $51,000 in loan forgiveness. Using a principal reduction program would save $9.9 billion, compared with $8.2 billion under the current version of HAMP.
The costs to taxpayers of Treasury's incentives programs would be about $3.8 billion, according to the FHFA analysis.
Congressional Democrats and the Obama administration are arguing that principal reduction will save taxpayers money by reducing the chance that homeowners who are deeply underwater will eventually give up on their mortgages.
Moreover, they say the move could help borrowers keep their homes and slow the rate of foreclosures, which have flooded the market and sent home prices plunging.
“I have been saying for many months that we need to focus on data rather than ideological or political opposition to principal reductions,” said House Government Reform and Oversight Committee ranking member Elijah Cummings (Md.).
“Although I am encouraged that Mr. DeMarco has now begun to move in this direction, we continue to await the documents and analyses we requested months ago, and the jury is still out on whether he will act to serve both homeowner and taxpayer best interests.”
Most Viewed RSS Feed »
