The Treasury and Fannie Face Off Over Foreclosures and Principle Reductions

The U.S. Treasury faced off with Fannie Mae and Freddie Mac  regulator Edward DeMarco over principal reductions as way to give foreclosure relief to a large number of homeowners.

According to analysis from the Federal Housing Finance Agency, principal reductions can help close to 500,000 homeowners prevent foreclosure and save the taxpayers $1 billion. Principle reductions can reduce monthly mortgage payments, making homeowners less likely to default on their home loans.

The Treasury along with independent economists has been urging Fannie Mae and Freddie Mac, the largest originators of mortgage loans, to offer principal reductions, but the head of the two agencies, Edward DeMarco, has refused this move more than once. Treasury Secretary Timothy Geithner and DeMarco recently faced off in emails about Demarco’s refusal.

In the email exchange DeMarco said that his agency’s analysis did not show that writing down mortgages “would not make a meaningful improvement in reducing foreclosures in a cost effective way for taxpayers.”

In a letter to Congress, DeMarco said principle reductions would at most save the taxpayers $500 million, and could compel over 19,000 homeowners to strategically default on their home loans in order to take advantage of a principle reduction. 

Geithner stuck back by saying DeMarco omitted key details about, Principle Reduction Alternative an extension of the HAMP program. Geithner said that even if the longer-delinquent loans DeMarco referred to were left out of the program 300,000 homeowners would benefit at no cost to the taxpayer. In addition reducing foreclosures would also help the housing market recover and stop home prices from dropping further.

DeMarco, however, is not budging and some of his toughest critics have said he should be fired.             

Principle reductions are just one of the many ways the federal government has tried to stave off the foreclosure crisis. It is just one alternative available to the troubled homeowner.  A foreclosure attorney can outline other options to keep a lender from seizing a home which will benefit not only the homeowner but the community in general.