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Fannie, Freddie loan write downs possible: regulator
A view shows the Fannie Mae logo at its headquarters in Washington March 30, 2012.
Credit: Reuters/Jonathan Ernst
WASHINGTON |
WASHINGTON (Reuters) - The regulator for Fannie Mae (FNMA.OB) and Freddie Mac (FMCC.OB) said on Tuesday it might make sense for the housing finance companies to write down loan principal under an Obama administration plan, but further study was needed.
The White House in January offered financial incentives to the two government-controlled mortgage market giants, which have been propped up with more than $150 billion in taxpayer funds, to help cover any increased costs they might face forgiving loan principal.
Edward DeMarco, the acting director of the Federal Housing Finance Agency, said a preliminary analysis showed the firms could save $1.7 billion under the plan to have Fannie Mae and Freddie Mac cut loan balances for so-called "underwater" borrowers who owe more than their homes are worth.
Delivering his remarks at a speech at the Brookings Institution, he said one aspect to be considered was that the program might encourage borrowers to strategically default to obtain aid, driving up the cost, and said that even if the companies saved money, taxpayers would still be on the hook for the financial incentives.
DeMarco also said the program would help only about one million borrowers, only a fraction of the estimated 11 million underwater U.S. homeowners nationwide.
"This is not about some huge difference-making program that will rescue the housing market," he said. "It is a debate about which tools, at the margin, better balance two goals: maximizing assistance to several hundred thousand homeowners while minimizing further cost to all other homeowners and taxpayers."
Before the incentives were on the table, DeMarco had maintained that Fannie Mae and Freddie Mac could provide as much relief to distressed borrowers at less cost to taxpayers through loan forbearance.
The two companies, which were seized by the government in 2008 as loan losses mounted, now finance about 60 percent of all new mortgages.
TRIPLED INCENTIVES
The plan DeMarco is considering would triple the financial incentives for principal relief offered by the Treasury Department under the Home Affordable Modification Program, and it would pay Fannie Mae and Freddie Mac as much as 63 cents for every dollar of mortgage debt they forgive.
The costs would be covered by the Troubled Asset Relief Program, the government's financial rescue fund.
By offering money from TARP, the administration hopes to overcome DeMarco's objections. As the conservator of the two companies, FHFA is charged with conserving the firms' assets.
DeMarco said FHFA estimated that the Treasury would need to provided $3.8 billion in incentives. Taking into account the savings for Fannie Mae and Freddie Mac, he said that would mean the net cost to taxpayers would be $2.1 billion, not counting the possibility that some borrowers could strategically default to obtain aid.
The regulator has promised to provide a final answer later this month on whether the incentives now make it worthwhile for Fannie Mae and Freddie Mac to write down loan balances.
DeMarco said his agency still needs to determine the program's likely operational cost and how it could track whether or not borrowers are strategically defaulting. It also needs to consider how the companies could work with mortgage servicers to develop technology and training to launch the initiative, he said.
The regulator has been under intense political pressure to allow Fannie Mae and Freddie Mac to forgive mortgage principal. Many Democrats argue the step would help lay a base for a housing recovery.
Representative Elijah Cummings of Maryland, who has taken the lead on the issue for Democratic lawmakers, said he was "encouraged" by DeMarco's speech, but added: "The jury is still out on whether he will act to serve both homeowner and taxpayer best interests."
(Reporting by Margaret Chadbourn; Editing by James Dalgleish)
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The fact is Fannie and Freddie are ALREADY BANKRUPT, and basically the property of the US government (i.e. taxpayers).
It is a bad idea that will help no one except the banks who will transfer these “partial foreclosures” — yes, that is what a “writedown” really is — to the government, which is now the sole guarantor for these loans.
I fail to understand how, exactly, increasing the number bank foreclosures (partial or full) can possibly help the US economy.
What DID happen is:
(1) the banks took the bailout money, supposed because they were too “big to fail” and needed it to cover their losses due to bad mortgages,
(2) PLUS the banks also charged Fannie and Freddie (i.e. the US government and, ultimately, the taxpayers) with the TOTAL AMOUNT OF BAD LOANS THEY KNOWINGLY ACCEPTED, when those loans began to go bad.
(3) AND THE BANKS ARE STILL DOING IT TODAY, which is why this issue of “write-downs” has come up again.
(4) In essence, the banks got bailed out by the American taxpayers TWICE FOR THE SAME BAD MORTGAGES. The first time in the original bailout, and now through foreclosures, which are ALL underwritten (i.e. guaranteed) by Fannie and Freddie, who are now in bankruptcy themselves and wholly-owned subsidiaries of the government (who will come to collect from the US taxpayer very shortly).
(5) Why didn’t the banks use the bailout money for the bad mortgages as they should have? Because the “no strings attached” bailout money was used for other things, like investing in third-world countries for better profits than they could get here, which is why there is (and never will be) any US recovery as long as the bailouts to the banks continues. It is also why the bank stocks are growing at an insane rate — free money from the US government for them to invest.
THAT is why they still need to continue this insane foreclose racket, because the bad mortgages are still on their books.
The bad mortgages on their books are so bad in fact, that there is no clear title to the property — thus the issue of “robo-signers” the banks used to forge the signatures they needed to transfer the losses to Fannie and Freddie in order to get the bad mortgages off their books.
THE UGLY TRUTH IS THE BANKS DID THIS TO THEMSELVES, AND NOW WANT THE US TAXPAYER TO TAKE THE LOSSES — TWICE.
So, the solution is very simple, REVERSE ALL the write-offs and bank foreclosures since the housing market collapse back onto the banks who incurred them in “bad faith” in the first place, thereby forcing them to incur the losses they should have taken in the first place.
I would suggest a VERY STEEP REPAYMENT PLAN to avoid those “too big to fail” banks to use that excuse again, since frankly they seem to be doing just fine now.
THAT will get money flowing into the US economy again, instead of out of it, which is what is happening now.
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