It began when Edward DeMarco, the acting director of theFederal Housing Finance Agency, said Fannie Mae and Freddie Mac couldn’t extend mortgage reductions to troubled homeowners who owe more than their property is worth. The administration had been pressuring DeMarco, whose agency oversees the taxpayer-supported mortgage giants while they are in conservatorship, to permit them to eliminate a portion of the loan amount owed to the lender or investor.
“The potential benefit was too small and uncertain relative to known and unknown costs and risks,” DeMarco said. This view contradicted the conclusions of a recent report by his agency stating that Fannie Mae and Freddie Mac would benefit by $1.8 billion if principal reductions were allowed. Advocates of the program have argued it benefits both borrowers and taxpayers, because it can be used to avoid costly foreclosures.
Treasury Secretary Timothy Geithner was quick to object.“The use of the targeted principal reductions by the GSEs,” he said, referring to the government-sponsored enterprises, “would provide much-needed help to a significant number of troubled homeowners.”
That would be a hasty conclusion. There are 13 administration loan-modification programs already. They include the Home Affordable Modification Program (commonly called HAMP) and the revamped Home Affordable Refinance Program, called HARP 2.0.