Explaining Southern California's economy

FHFA battle: Mortgage principal reductions versus forbearance

Number Of Foreclosures

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The foreclosure crisis continues to rage in America. Could mortgage giants Fannie Mae and Freddie Mac do something about it?

NPR and ProPublica have been pressing forward with their reporting on the doings at Fannie Mae and Freddie Mac, the two mortgage giants that were put into government conservatorship during the financial crisis. Jesse Eisinger remains the lead reporter on the case. In January, he detailed how Freddie was allegedly structuring its investment portfolio to profit from mortgages that it refuses to refinance (I and others thought Eisinger misinterpreted Freddie's motives here). Now he's looking at why the Federal Housing Finance Administration (FHFA), Fannie and Freddie's regulator, won't support principal reductions.

Here's a salient section:

New analyses by mortgage giants Freddie Mac and Fannie Mae have added an explosive new dimension to one of the most politically charged debates about the housing crisis: Whether to reduce the amount of money beleaguered homeowners owe on their mortgages.

Their conclusion: Such loan forgiveness wouldn’t just help keep hundreds of thousands of families in their homes, it would also save Freddie and Fannie money. That, in turn, would help taxpayers, who bailed out the companies at a cost of more than $150 billion and are still on the hook for future losses.

The analyses, which have not been made public, were recently presented to the agency that controls the companies, the Federal Housing Finance Agency, according to two people familiar with the matter. Freddie Mac’s meeting with the FHFA took place last week.

The decision of whether to allow such reductions rests with Edward DeMarco, the acting director of the FHFA, who has steadfastly opposed so-called principal reductions on the grounds that it’s a bad business decision for the companies and would cost taxpayers money.