Monday, April 16, 2012

Eleven AGs Send Letter Urging DeMarco to Reverse Course

Eleven state attorneys general sent a letter to Edward DeMarco, Acting Director of the FHFA, urging him to allow Fannie Mae and Freddie Mac to move forward with principal reductions.

Headlined by Massachusetts Attorney General Martha Coakley, the letter doubled down on the FHFA to “preserve assets and prevent unnecessary foreclosures by implementing loan modifications that include principal write-downs.”

State attorneys general said that new reductions “should consider all of a borrower’s debts, not just the monthly mortgage debt, be uniform, transparent, and publicly disclosed.”

The letter added that current statistics and analysis are “completely model driven and FHFA’s analysis cautions that the model used may not be appropriate. We encourage the FHFA to use actual results in its analyses where real data are available, including data from HAMP, and the anticipated data from the ‘Multistate Servicing Settlement.’”

When comparing principal reduction versus principal forbearance, the letter stated that principal reduction improves an underwater borrower’s equity position, which “will incent homeowners to maintain loan payments resulting in lower re-default rates.”

Pointing to the Treasury’s recent tripling of incentive payments to mortgage investors who allow principal reduction, the letter stated that this should substantially reduce FHFA’s concerns over the financial impact of principal reduction, noting that the “payouts ranged between six and 21 cents to the investors for each dollar forgiven under HAMP, but that will grow to between 18 and 63 cents.”

FHFA Acting Director Edward DeMarco continues to resist calls by lawmakers and policymakers to implement new loan modifications for homeowners, stressing the agency’s “preserve and conserve” mandate.

Coakley and others were joined this week by International Monetary Fund Director Christine Lagarde, who reportedly leaned on regulators to reduce the mortgage debt owned by U.S. homeowners.
Source: Ryan Schuette

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