New York Attorney General Eric T. Schneiderman has joined Massachusetts Attorney General Martha Coakley in leading a nine-state coalition demanding new, permanent leadership at the Federal Housing and Finance Agency (FHFA), the agency that oversees the government-sponsored enterprises (GSEs), Fannie Mae and Freddie Mac. In a letter to the President and Congressional leaders, the attorneys general write that under the current leadership of the FHFA’s Acting Director Edward DeMarco, Fannie Mae and Freddie Mac have been a “direct impediment to our economic recovery” by the continued refusal to give principal relief for struggling homeowners, and call for a new permanent leader to replace DeMarco, an appointee of former President George W. Bush. Also joining Schneiderman and Coakley in signing the letter were Kamala D. Harris, California Attorney General; Joseph R. "Beau" Biden III, Delaware Attorney General; Lisa Madigan, Illinois Attorney General; Douglas F. Gansler, Maryland Attorney General; Catherine Cortez Masto, Nevada Attorney General; Ellen Rosenblum, Oregon Attorney General; and Bob Ferguson, Washington Attorney General.
“The FHFA's refusal to allow for principal write-downs that would result in more loan modifications is a direct impediment to our economic recovery and stands in way of our efforts to provide much needed assistance to homeowners in New York and across the country,” said Attorney General Schneiderman. “Under the leadership of Acting FHFA Director Edward DeMarco, Fannie Mae and Freddie Mac remain an obstacle to progress by refusing to adopt policies that will help maximize relief for struggling homeowners. The time has come for the President and Congress to work together to install a new, permanent leader at FHFA that will be a partner, not an impediment, in the national effort to comprehensively address the foreclosure crisis.”
In the letter, the AGs argue that principal write-downs are a central component of the national settlement, and continue to bring meaningful relief to distressed borrowers, spurring our nation’s economic recovery. Principal reduction is a form of loan forgiveness that would help “underwater” borrowers whose mortgages are worth more than their homes.
In general, all loan modifications rely on a net-present value (NPV) analysis that serves the dual purposes of helping borrowers keep their homes and meeting the economic interests of lenders and investors. The positive impact of mortgage modifications which often include principal write-downs continues to be felt on the housing market, economy, and our local communities.
The FHFA's continued position that principal forgiveness conflicts with its goal of asset preservation is “not supported by reality,” the attorneys general assert in the letter. The agency’s current policy actually reduces the value of its holdings portfolio. It is far more profitable for any financial institution to hold a portfolio of performing $200,000 mortgages that lets families keep their homes than a portfolio of non-performing $250,000 mortgages headed toward default.
“We have worked tirelessly, along with our federal, state, and local partners to develop a multi-pronged approach to dealing with the foreclosure crisis,” the letter concludes. “Fannie Mae and Freddie Mac should be among our partners in this effort, and leaders in the arena of loan modification best practices. Instead, they have been an obstruction.”