Skip to content

Gov’t regulator refuses to allow mortgage reductions, despite Obama mandate

foreclosuresign Govt regulator refuses to allow mortgage reductions, despite Obama mandateThe Obama administration has been pushing for banks and investors to cut mortgage balances for homeowners who owe more than their home is worth. But the regulator for the biggest investors of them all — the government-controlled Fannie Mae and Freddie Mac — won’t let the two do it.

The administration and some banks themselves have increasingly seen reducing the size of a borrower’s loan — what’s known as principal reduction — as an important tool for helping the quarter of all homeowners who are underwater on their mortgages. The Treasury Department told ProPublica that the imbalance between what borrowers owe and what their homes are worth is one of the “main causes” of homeowners defaulting on their loans.

The administration sees principal reduction as a win-win, keeping families in their homes and allowing owners of the mortgages to recoup more money than they would through foreclosures. The logic is that if homeowners owe closer to what their home is actually worth, it decreases the likelihood they will default on the loan even after its modified.

Fannie and Freddie would seem to be the perfect players to promote principal reduction to prevent foreclosures. They’re under government control, and they own or guarantee about half of the country’s mortgages, meaning they pay the loss if a homeowner defaults. Because of that dominance, they also set the tone for how companies manage, or “service” in industry parlance, delinquent loans.

John Taylor, the head of the nonprofit National Community Reinvestment Coalition, says Fannie and Freddie could easily and quickly affect the overall housing market. “They have the greatest authority and portfolio to make an impact,” said Taylor. There are tens of thousands of loans “they can take care of tomorrow,” he said.

But data show that Fannie and Freddie don’t reduce principal, even if it might save them money in the long term. The reason: Their regulator won’t let them. (The regulator, the Federal Housing Finance Agency, declined to comment.)

Fannie and Freddie, the two Government Sponsored Entities, or GSEs in industry lingo, have been under government conservatorship since the summer of 2008, when they nearly collapsed in the housing crisis. Since then, Treasury has pumpedover $150 billion into the agencies, adding more funds nearly every quarter. Fannie and Freddie stand to cost taxpayers more than the rest of the bailout combined.

Their regulator, the FHFA, is responsible not only for overseeing Fannie and Freddie’s broad mission to support the U.S. housing market, but also for making sure Fannie and Freddie conserve their funds in the short term to wean themselves off government support. These two roles can run counter to one another. In this case, reducing principal for some homeowners could add stability to the housing market and save Fannie and Freddie money in the long term, but it would also force them to take an immediate hit to their balance sheets.

“They’ve got a different set of objectives, in some way, different constraints,” Treasury Secretary Timothy Geithner told a congressional panel yesterday, who nevertheless is encouraging FHFA to accept principal reduction.

Laurie Goodman, senior managing director at Amherst Securities, a brokerage firm that specializes in mortgage securities, said private investors generally support mandatory principal reductions, but Fannie and Freddie have short-term pressures that will limit their interest. “A conservatorship … conserves assets,” she wrote in a report this summer, where she predicted that Fannie and Freddie will not likely accept principal reductions in the future.

The regulator’s aversion to principal reduction is “short-sighted,” says David Stevens, the commissioner of the Federal Housing Administration, which runs a principal reduction program.

The government should focus on making sure modifications are sustainable so homeowners don’t default again down the road, says Sen. Ted Kaufman, D-Del., chair of the Congressional Oversight Panel. He says what you don’t want to do “is start using taxpayers’ money to modify loans, and then have them go belly up. That is clearly the worst case.”

A Freddie Mac spokesman deferred comment to the FHFA, and Fannie Mae spokeswoman Amy Bonitabus said, “We are continuously reviewing our policies regarding the modification of mortgages based on changing economic circumstances and our analysis of whether the policies are working.”

Industry insiders say they see a double standard, with Treasury encouraging the private sector to do principal reduction without forcing Fannie and Freddie do the same. They “sometimes seem the last to take action,” said one servicing executive.

This year, Treasury pledged billions of dollars to three programs to help both current and delinquent borrowers who are underwater on their mortgages. (Check out our overview of the programs.) Each program is structured differently to try to prevent what critics call a “moral hazard,” where homeowners fall behind on their mortgage just to qualify for the reductions.

Fannie and Freddie are not participating in any of them.

The Wall Street Journal reported last week that the Obama administration has been pressuring the FHFA to allow Fannie and Freddie to reduce principal, and that they are “in talks” about joining the program that targets borrowers who aren’t behind on their loans. Yesterday Geithner testified that he was “hopeful that they’re going to find a way to participate in many of these programs as possible.” Industry analysts, however, have expressed doubts that the talks will have much impact. Congressional Republicans have been particularly vocal in pressuring the FHFA against doing principal reduction.

Even though President Obama appoints the head of the FHFA, the president’s authority to exert control ends there because the regulator is an independent federal agency. Congress, however, can pass legislation forcing the FHFA to allow principal reductions. Credit Suisse analysts wrote last week, “Given the current make up of Congress, it would be difficult to get a borrower bailout law approved, in our view.”

Treasury has been “uber-strong” in its support of principal reduction, according to Lon DeWeese, the chief financial officer of the Nevada housing agency that runs the state’s Treasury-sponsored program that includes principal reduction.

Meanwhile, banks have also been seeing the benefits in reducing principal in certain cases as well. Indeed, nearly all principal reductions that occur happen for the loans banks hold on their own portfolio, where they have the fewest obstacles to the modifications. Over the last year, banks have used principal reduction on almost a third of modifications on loans they own, according to ProPublica’s analysis of regulator’s data.

Wells Fargo and Bank of America, for example, have both agreed to consider principal reductions in the Treasury’s main loan modification program, but only for loans that they own outright. One bank executive said that their internal analysis predicts that a “good percentage” of their government modifications will soon involve principal reduction, since the calculations indicate that they will recoup more money by reducing principal.

“If it’s good enough for their own balance sheets, where the banks have the risk, why wouldn’t it be good enough” for Fannie and Freddie, asked FHA Commissioner Stevens.

Investment analyst Goodman said the calculations for Fannie and Freddie can differ from the rest of the market because Fannie and Freddie have financial arrangements that force other companies to cover losses for some defaulted loans. Many of their delinquent loans have mortgage insurance, which requires insurance companies to cover the loss when borrowers lose their homes. Doing a principal reduction also limits Fannie and Freddie’s ability to recoup their losses by forcing lenders that originated the mortgages to buy back bad loans.

Even if not every underwater loan qualifies, the administration thinks “there’s a pretty good economic case for Fannie and Freddie to participate in those programs,” Sec. Geithner testified yesterday.

For example, the voluntary “Principal Reduction Alternative” to Treasury’s main loan modification program encourages adjustments only where reducing principal costs less than letting the home go to foreclosure or than doing a modification that doesn’t trim the loan. But Fannie and Freddie are not participating, even though the program is only for principal reductions that would save them the most money.

The pressure to stem short-term losses means that over the long term, Fannie and Freddie might be leaving some money on the table.

“Our thinking was that maybe it is a bit myopic of the collective conservatorship to just say, ‘No,’ out of hand because of the immediate impact,” Nevada’s DeWeese said.

The administration acknowledges the tension between short-term and long-term demands, saying it tries to “strike a balance” between helping homeowners to prevent avoidable foreclosure and protecting taxpayer interests, said Treasury spokeswoman Andrea Risotto.

Homeowner advocate Taylor said he is upset that Fannie and Freddie aren’t being forced to accept principal reduction because they “would be out of business tomorrow” without taxpayer funds.

–by Karen Weise

Related Posts with Thumbnails

Posted in Politics.

Tagged with , , , , , .

Support #altnews & keep Dark Politricks alive

Remember I told you over 5 years ago that they would be trying to shut down sites and YouTube channels that are not promoting the "Official" view. Well it's happening big time. Peoples Channels get no money from YouTube any more and Google is being fishy with their AdSense giving money for some clicks but not others. The time is here, it's not "Obama's Internet Cut Off Switch" it's "Trumps Sell Everyones Internet Dirty Laundry Garage Sale".

It's not just Google/YouTube defunding altenative chanels (mine was shut), but Facebook is also removing content, shutting pages, profiles and groups and removing funds from #altnews that way as well. I was recently kicked off FB and had a page "unpublished" with no reason given. If you don't know already all Facebooks Private Messages and Secret Groups are still analysed and checked for words related to drugs, sex, war etc against their own TOS. Personally IU know there are undercover Irish police moving from group to group cloning peoples accounts and getting people booted. Worse than that I know people in court at the moment for the content they had on their secret private group. Use Telegrams secret chat mode to chat on, or if you prefer Wickr. Or if you need to, buy a dumb phone with nothing for the NSA to hack into if you are that paranoid. Ensure it has no GPS tracking on it and the battery can be removed. These are usually built for old people to get used to technology storing only a set of numbers to call. However they have no games, applications to install and other ways people can exploit the computer tracking device you carry round with you most of the day.

So if your not supporting this site already which brings you news from the Left to the Right (really the same war mongering bollox) then I could REALLY do with some..

Even if it's just £5 or tick the monthly subscription box and throw a few pound my way each month, it will be much appreciated. Read on to find out why.


Any support to keep this site would be appreciated. You could set up a monthly subscription for £2 like some people do or you could pay a one off donation as a gift.
I am not asking you to pay me for other people's articles, this is a clearing house as well as place to put my own views out into the world. I am asking for help to write more articles like my recent false flag gas attack to get WWIII started in Syria, and Trump away from Putin. Hopefully a few missiles won't mean a WikiLeaks release of that infamous video Trump apparently made in a Russian bedroom with Prostitutes. Also please note that this article was written just an hour after the papers came out, and I always come back and update them.

If you want to read JUST my own articles then use the top menu I have written hundreds of articles for this site and I host numerous amounts of material that has seen me the victim of hacks, DOS plus I have been kicked off multiple hosting companies, free blogging sites, and I have even had threats to cease and desist from the US armed forces. Therefore I have to pay for my own server which is NOT cheap. The more people who read these article on this site the more it costs me so some support would be much appreciated.

I have backups of removed reports shown, then taken down after pressure, that show collusion between nations and the media. I have the full redacted 28/29 pages from the 9.11 commission on the site which seems to have been forgotten about as we help Saudi Arabia bomb Yemeni kids hiding in the rubble with white phosphorus, an illegal weaapon. One that the Israeli's even used when they bombed the UN compound in Gaza during Operation Cast Lead. We complain about Syrian troops (US Controlled ISIS) using chemical weapons to kill "beautiful babies". I suppose all those babies we kill in Iraq, Yemen, Somalia and Syria are just not beautiful enough for Trumps beautiful baby ratio. Plus we kill about 100 times as many as ISIS or the Syrian army have managed by a factor of about 1000 to 1.

I also have a backup of the FOX News series that looked into Israeli connections to 9.11. Obviously FOX removed that as soon as AIPAC, ADL and the rest of the Hasbra brigade protested.

I also have a copy of the the original Liberal Democrats Freedom Bill which was quickly and quietly removed from their site once they enacted and replaced with some watered down rubbish instead once they got into power. No change to police tactics, protesting or our unfair extradition treaty with the USA but we did get a stop to being clamped on private land instead of the mny great ideas in the original.

So ANY support to keep this site running would be much appreciated! I don't have much money after leaving my job and it is a choice between shutting the server or selling the domain or paying a lot of money just so I can show this material.

Material like the FSB Bombings that put Putin in power or the Google no 1 spot when you search for protecting yourself from UK Police with "how to give a no comment interview". If you see any adverts that interest you then please visit them as it helps me without you even needing to give me any money. A few clicks per visit is all it takes to help keep the servers running and tag any tweets with alternative news from the mainstream with the #altnews hashtag I created to keep it alive!

However if you don't want to use the very obvious and cost free ways (to you) to help the site and keep me writing for it then please consider making a small donation. Especially if you have a few quid sitting in your PayPal account doing nothing useful. Why not do a monthly subscription for less money instead. Will you really notice £5 a month?

0 Responses

Stay in touch with the conversation, subscribe to the RSS feed for comments on this post.

Some HTML is OK

or, reply to this post via trackback.