It turns out that the housing rights protestors that interrupted a lecture earlier this week at Harvard from Federal Housing Finance Agency Director Mel Watt aren’t the only ones pushing the FHFA to engage in principal reduction.
In a letter sent this week to Watt, New York Attorney General Eric Schneiderman joins the chorus calling for Fannie Mae and Freddie Mac to reduce the mortgage balances of struggling borrowers.
In Schneiderman’s letter, a copy of which was obtained by HousingWire, New York’s attorney general says that he is “pleased” that the FHFA is now “seriously evaluating” adopting a principal reduction plan, and advocates that principal reduction “should be deployed broadly and quickly to homeowners in desperate need of this relief from the continuing damage caused by the housing crisis.”
According to Watt, the FHFA is still considering a principal reduction plan, despite reports to the contrary.
Last month, the Wall Street Journal reported that the FHFA recently approved a plan for the government-sponsored enterprises to engage in principal reduction on a large scale for the first time since the housing crisis.
But later that same day, Watt gave a speech at a public policy luncheon hosted by the Women in Housing and Finance, during which he said that the issue of principal reduction has been the “most challenging” that the FHFA has faced in his two years there noted that no decision on principal reduction had been made at that point.
In his letter to Watt, Schneiderman argues that the FHFA needs to begin engaging in principal reduction, having seen the effect that mortgage relief can have for borrowers.
“In my role as co-chair of the Residential Mortgage Backed Security working group, I have worked with federal and state partners to bring mortgage modifications and other types of consumer relief to tens of thousands of New York homeowners who are still struggling to avoid foreclosure,” Schneiderman writes. “Yet there are still far too many homeowners suffering from the devastation of the housing crisis, a significant portion of whom are have mortgages insured by Fannie Mae and Freddie Mac.”
Schneiderman goes on to write that in 2013 alone, there were nearly 60,000 homeowners in New York who were delinquent on mortgages controlled by Fannie Mae and Freddie Mac, a figure that prompted Schneiderman to join eight state Attorneys General to write President Obama and the Congressional leadership in 2013 urging the FHFA to adopt a principal reduction mortgage modification option.
But now, Schneiderman is renewing that call, saying that there is “significant evidence” that principal reduction is a truly beneficial option for borrowers.
“As you know, there is significant evidence that homeowners who are seriously delinquent on their mortgages are most likely to avoid foreclosure and remain in their homes when reduction of principal balance is part of a loan modification offer,” Schneiderman writes. “While virtually all of the large commercial single family lenders now include principal reduction in their foreclose mitigation options for struggling borrowers, both Fannie Mae and Freddie Mac continue to deny this badly needed relief to consumers causing countless numbers of families to remain at risk.”
Schneiderman writes that the FHFA’s current “asset preservation” policy is both “bad for homeowners and actually counter-productive,” because it reduces the value of the GSEs portfolio assets.
“It is far more profitable for any financial institution to hold a portfolio of performing $200,000 mortgages that keeps families in their homes than a portfolio of non-performing $250,000 mortgages headed toward default,” Schneiderman writes.
“I know that you share my commitment to helping families who were victimized by this man-made crisis, and to making sure struggling families are given every opportunity to remain in their homes and their communities,” Schneiderman continues.
“I am encouraged that FHFA recognizes the need to change its policy,” Schneiderman concludes. “I urge you to move swiftly to create and implement a principal reduction loan modification program and to ensure that this relief is provided to as many homeowners as possible, as it is the surest way to help the tens of thousands of families, both in New York State and throughout the country, who desperately need this relief.”
