Despite continued pressure from Democrats, the Federal Housing Finance Agency continued to push back against calls for principal reductions on government-backed mortgage loans, the Los Angeles Times reported Feb. 29.
Addressing the Senate Banking Committee Feb. 28, Acting FHFA Director Edward J. DeMarco said principal reduction likely will hurt taxpayers by exposing them to potential future losses. Since Fannie and Freddie came under government conservatorship in 2008, the U.S. Treasury has pumped $183 billion in taxpayer money into the agencies.
DeMarco testified that he felt interest rate reductions, modifying loan lengths and deferring payments on principal were the wisest steps for decreasing foreclosures and reducing risks for Fannie and Freddie, the Times reported.
However, Democrats in particular continue to argue that writing down the principal on mortgages for which loan balances exceed home values could help stabilize the housing market. Sen. Robert Menendez, D-N.J., told DeMarco, “In my view, the FHFA has shown a dismal lack of initiative in the housing crisis,” the Times reported. “The banks are finding it profitable to give principal reductions to about 20 percent of their own loans, while, ironically, the government isn’t allowing principal reductions on any loans.”
Republicans, for the most part, have been largely supportive of DeMarco.
Five of the nation's largest banks are pursuing principal reductions as part of their recent national settlement with state attorneys general and federal agencies. However, Fannie and Freddie, which own or guarantee 60 percent of existing mortgages and back 75 percent of all new mortgages, were not part of the settlement.