DeMarco asked for Proof of Authority for Loan Decisions

Sixteen House Democrats have asked thernFederal Housing Finance Agency to justify its position on reducing principal onrnloans owned by Freddie Mac and Fannie Mae. rnElijah Cummings (D-MD), ranking member of the House Committee onrnOversight and Government Reform and the 16 Democratic members of the committeernsent a letter to FHFA Acting Director Edward DeMarco Wednesday seeking documentsrnhe promised the Committee regarding his analysis of programs to reduce mortgagernprinciple.  </p

DeMarcornallegedly told members of the Committee at a hearing on November 16 “We have been through the analytics of the underwaterrnborrowers at Fannie and Freddie, and looked at the foreclosure alternative programsrnthat are available, and we have concluded that the use of principal reductionrnwithin the context of a loan modification is not going to be the least-costrnapproach for the taxpayer.”  When arncommittee member pointed out that several banks are already implementingrnprincipal reduction programs in an attempt to help delinquent or underwaterrnhomeowners and citing specific examples, DeMarco said “I believe that the decisions that we’ve made with regardrnto principal forgiveness are consistent with our statutory mandate.”   DeMarco then committed to providingrndocumentation of that statutory authority to the Committee.</p

In a letter sent to DeMarco onrnWednesday, the Cummings essentially reminded DeMarco of his agreement tornprovide the Committee with  “(1) thernspecific statutory provision you believe prohibits the Federal Housing FinancernAgency (FHFA) from allowing Fannie Mae and Freddie Mac to reduce mortgagernprincipal in all cases; and (2) the analysis you conducted, including the datarnyou examined, demonstrating that principal reduction never serves the long-termrninterests of the taxpayer when compared to foreclosure.”  DeMarco wasrnasked to provide the information no later than December 9.   </p

Thernletter cites specific instance of bank programs providing principal reduction.  One program at Ocwen allows a servicer tornreduce a loan to 95% of a home’s fair market value, forgiving the excessrnprincipal over three years as long as the homeowner remains current on mortgagernpayments.  When the home is sold orrnrefinanced Ocwen receives a 25 percent share of any appreciated value.  Wells Fargo has reportedly reduced thernbalances of 73,000 mortgages by an average of $51,000.  Other banks cited as having principalrnreduction programs are JP Morgan Chase, Ally Financial and Bank of America. rn</p

Cummings said of the Committee members’rnrequest, “For too long now we have heard superficial excuses about whyrnprincipal reduction programs are not feasible at Fannie Mae and Freddie Mac,rndespite a growing chorus of economists and other experts who believe thesernprograms serve the long-term interests of taxpayers.  Even thoughrncommercial banks have implemented their own principal reduction programs, FHFArnstubbornly continues to favor massive waves of foreclosures.  It’s highrntime to see the actual data and analyses behind this policy, and to workrntowards new approaches that finally put American homeowners and our nation’srneconomy first.”

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