Two Democratic lawmakers are claiming that the Federal Housing Finance Agency failed to roll out a nationwide mortgage reduction principal plan for underwater home owners even though a pilot program the agency did two years ago showed that it could significantly trim taxpayers’ costs.
Two House members — Reps. Elijah Cummins, D-Md., and John Tierney, D-Mass. — are alleging in a letter that Edward DeMarco, the acting director of the FHFA, “apparently has been withholding from Congress” documents that show the benefits of mortgage principal reduction program, MSNBC.com reports.
“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,” Cummings and Tierney wrote in the letter.
According to reports, the FHFA, which regulates mortgage giants Fannie Mae and Freddie Mac, participated in a pilot program with Citibank in 2009 that included reducing underwater homeowners mortgage principal. The Democratic lawmakers claim the pilot program showed “principal reduction programs have enormous potential to save U.S. taxpayers significant amounts of money” and significantly decreased re-default rates among home owners who had their mortgages reduced.
The program was suspended in July 2010, as well as a similar program the FHFA was conducting with Wells Fargo. The agency said it discontinued the pilot program because the banks did not agree to expand the program.
In recent months, the FHFA has refused to reduce mortgage principles on underwater home owners, despite mounting pressure from government officials who claim that such a program would curtail foreclosures and the number of home owners walking away from their home. The agency has argued that such a move would be costly to taxpayers and that other relief measures would be less costly, such as loan forbearance.
The Democratic lawmakers claim that some Fannie Mae officials reportedly had estimated that based on the pilot program reducing underwater home owners’ mortgage principal would cost the agency about $1.7 million but could potentially save taxpayers more than $410 million.
“Most Americans that are underwater on their mortgage realize they’ve signed a contract — they’ve got an obligation to make that payment and in fact they are,” DeMarco has said.
DeMarco in recent weeks has agreed to review the FHFA’s opposition to mortgage principal reductions for underwater home owners with both Fannie and Freddie Mac-backed mortgages.
“The FHFA continues to work on its principal forgiveness analysis and is in discussions with the Department of the Treasury,” a spokeswoman said. “A final determination … is being deferred until we conclude these activities.”
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