Edward DeMarco is acting director of the Federal Housing Finance Agency,… (Scott Eells / Bloomberg )
Call it an offer Edward J. DeMarco didn’t refuse.
The federal overlord for mortgage giants Fannie Mae and Freddie Mac this week gave the thumbs down to a Treasury program pushed by the Obama administration to reduce the mortgage debt of millions of distressed homeowners. The Treasury program would pay some incentives for reducing principal, but DeMarco said those benefits still didn’t outweigh the costs.
Economists and housing advocates have long pushed for more principal reduction, which is the writing down of loan balances for borrowers who are underwater. But DeMarco, acting director of the Federal Housing Finance Agency, has firmly denied them their wishes.
Except for some rare instances.
DeMarco has allowed Fannie and Freddie to participate in smaller-scale principal reduction programs, such as the one run by the California Housing Finance Agency, Keep Your Home California, as reported earlier this year by The Times. That program pays for all of the principal reduction borrowers receive using federal funds.
Now John Griffith, a policy analyst for the Center For American Progress, is advocating the federal government take up that model in an opinion piece titled "Time to Make an Offer FHFA Can’t Refuse." This is some of what he wrote Thursday on the center’s website (you can read the entire piece here):
"Instead of offering to pay for a portion of principal reductions using funds set aside for foreclosure prevention from the 2008 Wall Street bailout, they can offer to pay for all of it. By offering to cover up to 100 percent of the cost, the administration would overcome the regulatory agency’s main objection to loan principal reduction: the price."
Griffith notes that the window to use the federal bailout funds reserved for American homeowners is quickly closing and that it’s time to put all options on the table.
Nevertheless, even getting the smaller scale Keep Your Home California principal reduction program has been difficult. In an email exchange with The Times, Diane Richardson, legislative director for Cal-HFA, said that while Fannie and Freddie are still on board, they are not yet reducing principal through the program as logistics are still getting worked out.
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