Reuters: Regulatory News: UPDATE 1-U.S. Democrats seek documents in mortgage aid flap

Reuters: Regulatory News Reuters.com is your source for breaking news, business, financial and investing news, including personal finance and stocks. Reuters is the leading global provider of news, financial information and technology solutions to the world's media, financial institutions, businesses and individuals. // via fulltextrssfeed.com

UPDATE 1-U.S. Democrats seek documents in mortgage aid flap May 1st 2012, 21:21 Tue May 1, 2012 5:21pm EDT By Margaret Chadbourn WASHINGTON May 1 (Reuters) - U.S. Democrats on Tuesday pressed Fannie Mae and Freddie Mac's regulator to release documents they said show that allowing the firms to forgive mortgage debt could cost taxpayers less than other forms of mortgage aid. Representative Elijah Cummings, the top Democrat on the House of Representatives Oversight Committee, asked the head of the Federal Housing Finance Agency to confirm with internal company documents that principal reduction programs proposed as early as 2009 might have reduced losses. Cummings and Representative John Tierney of Massachusetts said in the letter to the FHFA's acting director, Edward DeMarco, that a former Fannie Mae employee had told congressional staff that executives at the mortgage finance company had canceled "at the 11th hour" the launch of a pilot program to reduce loan balances for troubled borrowers in 2010, despite months of preparation and deliberation to test the success rate of principal forgiveness. "Based on the documents we have obtained, it appears that the shared equity principal reduction pilot program should have been implemented years ago, and the failure to do so may have resulted in unnecessary losses to U.S. taxpayers," they said. The claim is the latest push by congressional Democrats to pressure FHFA to allow the two companies to pursue principal write-downs for borrowers who owe more on their mortgages than their properties are worth. DeMarco told the lawmakers that the programs were discontinued because the companies and the firms they do business with couldn't agree to go forward with them. DeMarco said in a letter released on Tuesday that he continues to consider principal forgiveness alternatives and is discussing them with the Treasury Department. In a sharply worded response, DeMarco said he was disappointed with the lawmakers for failing to bring their concerns to his agency before making them public and released an April 12 letter in which he said he had provided the documents they sought. "I strongly disagree with any characterization of FHFA's work or motives as anything but in keeping with the professionalism expected of this agency," he said. The FHFA had permitted Fannie Mae and Freddie Mac to test principal reduction programs to stem losses and to reach a greater number of homeowners under strain, the April letter says. The programs were ended "due to complex operational issues involving system changes, accounting considerations, and the interest level of Fannie Mae's partners," said the letter's author, FHFA general counsel Alfred Pollard. FHFA says other anti-foreclosure tactics are less costly and as effective as principal forgiveness, and DeMarco has defended his opposition by contending that write-downs would violate his mandate of preserving Fannie Mae and Freddie Mac's assets. However, the agency is evaluating an Obama administration proposal that would increase incentives for Fannie Mae and Freddie Mac to pursue principal reductions, hoping to offset whatever increased costs they might face. Fannie Mae and smaller rival Freddie Mac have received more than $150 billion in taxpayer-funded bailouts since they were taken over by the government in September 2008. The two support about 60 percent of all new U.S. home loans. According to the lawmakers' letter, the former staffer, whose name was not disclosed, said Fannie Mae had built the rationale for testing a mortgage reduction program as early as 2009, and that top executives had seen presentations and documents on the merits of such an initiative that could help underwater borrowers "perform better on a modification that reestablishes equity." The documents cited by the lawmakers said Fannie Mae officials "concluded several years ago, after substantial study and review, that principal reduction programs could save the company and U.S. taxpayers money by dampening the number of foreclosures," even when compared with alternatives such as principal forbearance. The aim was to complete a pilot with Citibank as Fannie Mae's private-sector partner and determine whether cutting mortgage debt prevented borrowers from "walking away" from their homes by using a shared equity component. The pilot program went through the vetting process at the company, yet was suspended in July 2010 without a clear explanation to Citibank, according to the letter from Cummings and Tierney. The employee told congressional staff that the estimated cost of implementing the Fannie Mae pilot program was $1.7 million while estimated benefits were more than $410 million. The congressmen said it was terminated not based on cost but because officials at the company were "philosophically opposed to writing down principal balances." However, DeMarco, in his response to Cummings and Tierney, denied any "ideological tilt" against principal write-downs. Link this Share this Digg this Email Reprints

You are receiving this email because you subscribed to this feed at blogtrottr.com. If you no longer wish to receive these emails, you can unsubscribe from this feed, or manage all your subscriptions