Two Democrats want regulator’s documents on reducing mortgage principal

House Democrats are pressing a federal housing regulator to produce records examining whether mortgage giants Fannie Mae and Freddie Mac should offer reductions of mortgage principal to struggling homeowners.

Rep. Elijah Cummings (D-Md.), ranking member of the House Oversight and Government Reform Committee, and panel member John Tierney (D-Mass.) spearheaded a letter sent Wednesday to committee Chairman Darrell Issa (R-Calif.) asking him to issue a subpoena to the Federal Housing Finance Agency (FHFA) for documents that analyze the viability of principal reductions.  

FHFA Acting Director Edward DeMarco said during a hearing in November that reducing mortgage principal could be costly to taxpayers, while agreeing to produce the agency’s documentation to support its stance. 

“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,” DeMarco said.

On Nov. 30, the panel’s Democrats sent a letter to DeMarco requesting that he provide the documents by Dec. 9.

Despite numerous written and oral follow-up requests, however, DeMarco has not provided the documents.

“Given Mr. DeMarco’s failure to produce to the committee the documents he committed under oath to provide, and the call by Federal Reserve officials for the implementation of loan modification programs that include principal reduction to address the ongoing housing crisis, we believe we are left with no option but to compel DeMarco’s compliance,” the lawmakers wrote. 

Federal Reserve Chairman Ben Bernanke, in a recent white paper on Jan. 4, said it might be worth the expense to lose money now in an effort to shore up the books of the government-sponsored enterprises for the long term while helping the economic recovery accelerate.

The paper stated that “some actions that cause greater losses to be sustained by the GSEs in the near term might be in the interest of taxpayers to pursue if those actions result in a quicker and more vigorous economic recovery.”

In a December hearing, New York Fed President William Dudley also called for a targeted principal-reduction program, saying that a program could be set up to reduce loan amounts to help those with underwater mortgages keep up on their loans. 

Last week, more than two-dozen House Democrats called for the White House to find someone else to head up the FHFA, arguing that DeMarco hadn’t done enough.