Democrats blast housing regulator for withholding documents on principal reductions

"It remains unclear why you failed to mention this in your testimony and why you failed to disclose this principal reduction program to the committee," the lawmakers wrote. 

"We have very serious concerns about your public statements, your previous responses to us, and your failure to provide Congress with complete and accurate information about these important matters."

The lawmakers acknowledged that while DeMarco has sent some requested documents, they have received information from an independent source "that you apparently have been withholding from Congress."

DeMarco missed his self-imposed deadline at the end of April to make a decision on whether Fannie and Freddie would offer mortgage principal reductions to borrowers who are underwater on their loans and current on their payments. 

Cummings and Tierney have been pressing DeMarco for months to produce documents and data to explain why the agency has refused to allow principal reductions for borrowers with mortgages backed by Fannie and Freddie. 

The documents they have obtained from the independent source show that Fannie officials worked with Citibank beginning in 2009 to develop a "shared equity" principal reduction pilot program that could have saved millions of taxpayer dollars but that ultimately was terminated for unspecified reasons. 

"The documents show that Fannie Mae officials strongly supported the concept of principal reduction and fully evaluated its risks and benefits as they obtained the necessary internal approvals to finalize the program," the lawmakers wrote. 

They also said that not implementing the pilot program was "not merely a missed opportunity, but a conscious choice that appears to have been based on ideology rather than Fannie Mae's own data and analyses."

Fannie Mae's own analyses found that implementing just the limited pilot program with Citibank could have saved more than $410 million while costing only $1.7 million to implement. 

An internal email from July 2010 shows that Citibank was surprised that Fannie Mae was suspending the program and wanted to know what happened at the "eleventh hour." 

Subsequent emails indicate that Citibank remained interested in pursuing the principal reduction program. 

For example, an email sent on Aug. 10, 2010, between Fannie Mae officials stated that Citibank "indicated they will wait for us to proceed with them on the pilot in 2011" and that they "remain very interested in doing the pilot."

"Despite Citibank's ongoing interest, the program was not implemented in 2011 or at any time thereafter," the lawmakers wrote. 

"There is no discussion in the documents about the specific operational concerns that led to the decision to suspend, and ultimately cancel, the program," they wrote. 

The lawmakers are asking DeMarco to produce any previously requested documents that have yet to be provided by May 11 and to make staff available for interviews no later than May 18.