In an administration that has completely lost its mind, and in which the solution to every problem is the forgiveness of debt to those who lived beyond their means, FHFA's Ed DeMarco is a lone voice of sanity. In a letter to Tim Geithner, the FHFA has the temerity to tell the truth and say that "after extensive analysis of the revised [Principal Reduction Act]...FHFA has concluded that the anticipated benefits do not outweigh the costs and risks... FHFA concluded that HAMP PRA did not clearly improve foreclosure avoidance while reducing costs to taxpayers relative to the approaches in place today."Via Bloomberg:
- *FANNIE MAE, FREDDIE MAC WON'T WRITE DOWN LOANS, DEMARCO SAYS
- *FHFA'S DEMARCO SAYS PRINCIPAL REDUCTION WON'T BENEFIT TAXPAYERS
Needless to say, when presented with a minority opinion that socialism just may not be the answer, Geithner was not happy and penned his own response. Both are presented below.
DeMarco To Geithner [11]:
STATEMENT BY EDWARD J. DEMARCO, ACTING DIRECTOR, FEDERAL HOUSING FINANCE AGENCY, ON THE USE OF PRINCIPAL FORGIVENESS BY FANNIE MAE AND FREDDIE MAC
Today, I provided a response to numerous congressional inquiries as to whether the Federal Housing Finance Agency (FHFA) would direct Fannie Mae and Freddie Mac to implement the Home Affordable Modification Program Principal Reduction Alternative (HAMP PRA). After extensive analysis of the revised HAMP PRA, including the determination by the Treasury Department to begin using Troubled Asset Relief Program (TARP) monies to make incentive payments to Fannie Mae and Freddie Mac, FHFA has concluded that the anticipated benefits do not outweigh the costs and risks. Given our multiple responsibilities to conserve the assets of Fannie Mae and Freddie Mac, maximize assistance to homeowners to avoid foreclosures, and minimize the expense of such assistance to taxpayers, FHFA concluded that HAMP PRA did not clearly improve foreclosure avoidance while reducing costs to taxpayers relative to the approaches in place today.
I have also previewed for Congress several housing-related initiatives to strengthen the loss mitigation and borrower assistance efforts of Fannie Mae and Freddie Mac as well as improve the operation of the housing finance market. These initiatives include new and consistent policies for lender representations and warranties, alignment and simplification of the Enterprise short sales programs, and further enhancements for borrowers looking to refinance their mortgages.
and Geithner's terse reply [12]:
Letter from Secretary Geithner to Acting FHFA Director DeMarco on the Principal Reduction Alternative (PRA) Program
By: Anthony Reyes
7/31/2012Today, Secretary Geithner sent the following letter to Acting Federal Housing Finance Agency Director Ed DeMarco on the Principal Reduction Alternative (PRA) program. Read the full letter here:
***
July 31, 2012
Federal Housing Finance Agency
Office of the Director
400 7th Street S.W.
Washington, D.C. 20024
Dear Acting Director DeMarco,
I am writing in response to the decisions announced in your letter to Congress today. While I was encouraged that the Federal Housing Finance Agency (FHFA) is making progress on some initiatives we have discussed that will help the housing market recover, I am concerned by your continued opposition to allowing Fannie Mae and Freddie Mac (GSEs) to use targeted principal reduction in their loan modification programs.
FHFA is an independent federal agency, and I recognize that, as its Acting Director, you have the sole legal authority to make this decision. However, I do not believe it is the best decision for the country, because, as we have discussed many times, the use of targeted principal reduction by the GSEs would provide much needed help to a significant number of troubled homeowners, help repair the nation’s housing market, and result in a net benefit to taxpayers.
Indeed, notwithstanding the selective numbers cited in your letter, FHFA’s own analysis, which you have shared with us previously, has shown that permitting the GSEs to participate in the Principal Reduction Alternative program (HAMP-PRA) could help up to half a million homeowners and result in savings to the GSEs of $3.6 billion compared to standard GSE loan modifications. Furthermore, if the GSEs were to participate in HAMP-PRA, taxpayers would save as much as $1 billion on a net basis. In view of the clear benefits that the use of principal reduction by the GSEs would have for homeowners, the housing market, and taxpayers, I urge you to reconsider this decision.
I have asked Michael Stegman of my staff to restate in writing for you the case for principal reduction, consistent with FHFA’s mandates as conservator and regulator of the GSEs, that the Treasury has made to you and your staff over the last several months. His memorandum is enclosed. Treasury stands ready to provide any additional analytical support to make a targeted principal reduction program at the GSEs successful.
We welcome the positive steps you announced today regarding further refinancing opportunities, providing clarity to lenders on legal exposures, aligning short sale practices, and putting foreclosed properties back on the market. All of these have the potential to help advance recovery of the housing market. As we have previously discussed, the impact of these steps will depend on the speed with which you act and the extent of the changes you make.
Five years into the housing crisis, millions of homeowners are still struggling to stay in their homes, and the legacy of the crisis continues to weigh on the market. You have the power to help more struggling homeowners and heal the remaining damage from the housing crisis. I hope you will move to address these problems with a sense of urgency and force commensurate with the scale of the remaining challenges.
Sincerely,
Timothy F. Geithner?