WASHINGTON (Reuters) - Fannie Mae FNM.N and Freddie Mac FRE.N should erase some mortgage debt for U.S. borrowers with sinking home values if it will help those homeowners avoid foreclosure, New York Senator Charles Schumer said on Wednesday.
Schumer called on the two mortgage finance companies to set an industry standard by letting troubled borrowers refinance to the true worth of homes devalued during the current housing market crisis. The companies’ regulator also said such an idea has merit.
Specifically, Schumer endorsed the process of “partial chargeoff” which allows a mortgage servicer to reduce the principal amount of a loan to the home’s true market value.
In a letter to the heads of the two companies, Schumer asked that they immediately state that “when appropriate, servicers can and should make partial chargeoffs available to struggling homeowners.”
Until the two largest sources of mortgage finance make such a statement, Schumer wrote, major mortgage industry players will not widely use the approach to save a borrower from foreclosure.
At the Reuters Regulation Summit on Wednesday, the Democratic member of the Senate Banking Committee said the two government-sponsored enterprises were holding back on efforts to help troubled borrowers because such moves are too costly.
“I have had it with them. They keep saying ‘It will lower our stock price. It’s not as profitable as what else we do.’ Then, ‘Hello!’ Fannie and Freddie, ‘Go become a private company,” Schumer said. “You have a government guarantee. You don’t pay taxes. You have a lot of benefits. Now if ever is the time for you to step up to the plate.”
James Lockhart, the Director of the Office of Federal Housing Enterprise Oversight, told the Reuters summit that he also wanted to see Fannie Mae and Freddie Mac explore “partial chargeoff” as an option.
“I think the GSEs need to look at this issue and we have discussed it with them. Historically, it has not been one of their practices... It is something that they need to look at and that we are encouraging them to look at,” he said.
Lockhart said foreclosure can cost a borrower up to half the value of a loan.
“There is a lot of room between 100 and 50 percent that you can work with,” he said.