In response to a request from members of Congress, the Federal Housing Finance Agency (FHFA) has publicly disclosed the analysis that led the agency to exclude principal forgiveness from its menu of loss mitigation tools. The FHFA has delivered to Rep. Elijah Cummings (D-MD), Rep. John Tierney (D-MA) and other members of Congress, a letter summarizing the agency’s determination and three separate staff analyses prepared over the past year that formed the basis for the determination.
As requested by Reps. Tierney and Cummings, the information provided by the FHFA demonstrates the analytic and legal basis for FHFA’s previously announced determination on the use of principal forgiveness as a loss mitigation tool. FHFA is not seeking any legislative action in this area, and the agency remains committed to achieving its mandate to conserve the assets and property of the government-sponsored enterprises (GSEs), Fannie Mae and Freddie Mac in conservatorship, while maximizing assistance to troubled homeowners, mindful of the net present value cost to taxpayers. As the FHFA states in its letter, changing circumstances may call for an updating of its analysis.
Each month, the FHFA reports on an array of loss mitigation activities undertaken by the GSEs, including loan modifications. Each quarter, the FHFA also reports on the redefault rates on loan modifications in its Foreclosure Prevention & Refinance reports. Since establishment of the conservatorships, Fannie Mae and Freddie Mac have reportedly modified more than one million mortgages and have undertaken nearly two million foreclosure prevention actions. Notably, the re-performance rate on loan modifications has improved substantially, as the modifications themselves now typically involve far greater reductions in monthly payments than did modifications in the early months of the housing crisis.
FHFA estimates that, as of June 30, 2011, Fannie Mae and Freddie Mac held 1.4 million mortgages with current loan-to-value (LTVs) ratios above 115 percent. Of these, one million were current and 176,000 had been delinquent for more than a year.