The principal reduction debate resurfaced after 45 members of the House of Representatives--led by Reps. Elijah E. Cummings (D-Maryland) and John F. Tierney (D-Massachusetts)--sent a ""letter"":http://democrats.oversight.house.gov/index.php?option=com_content&view=article&id=5861:45-house-members-urge-president-to-nominate-a-permanent-director-of-fhfa&catid=3:press-releases&Itemid=49 to President Obama, urging him to replace ""Federal Housing Finance Agency"":http://www.fhfa.gov/ (FHFA) Acting Director Edward J. DeMarco with a permanent director.[IMAGE]
DeMarco was mainly criticized for his resistance to a loan modification pilot program that would ""examine whether a principal reduction program could reduce costs to taxpayers while helping borrowers stay in their homes.""
The letter points out that as part of the Emergency Economic Stabilization Act of 2008, Congress granted FHFA authority to modify mortgage loans through the ""reduction of loan principal.""
According to the most recent data from CoreLogic, about 10.7 million residential properties are in ""negative equity."":http://dsnews.comarticles/corelogic-100k-homeowners-rose-above-of-negative-equity-in-q3-2013-01-17[COLUMN_BREAK]
Rather than allow Fannie Mae and Freddie Mac to implement a principal reduction program, DeMarco has ""stood firmly"":http://dsnews.comarticles/demarco-reiterates-stance-against-principal-forgiveness-program-for-gses-2012-07-31 against his critics, arguing principal reduction is not in the best interest of taxpayers and could cause a ""moral hazard"" issue.
To counter DeMarco's reasoning, the letter points to a principal reduction ""pilot program"":http://dsnews.comarticles/representatives-say-demarcos-stance-on-principal-reduction-seems-to-be-about-ideology-2012-05-02 developed by Fannie Mae and Citibank that was terminated due to ""operational"" challenges.
Cummings and Tierney challenged DeMarco in a previous ""letter"":http://democrats.oversight.house.gov/images/stories/2012-05-01.EEC-JFT%20to%20FHFA.pdf after receiving documents revealing a principal reduction pilot program in the works suddenly ended. The letter claims Fannie Mae officials estimated the pilot would cost about $1.7 million, while benefits could exceed $410 million.
""By not supporting this pilot programÃ¢â‚¬"even after the Department of Treasury offered funds to help cover its operational expensesÃ¢â‚¬"Mr. DeMarco demonstrated that he is not interested in obtaining real-world evidence that might contradict his pre-established views,"" the letter states.
The letter also argues FHFA's proposal to raise guarantee fees in high foreclosure states would ""penalize borrowers arbitrarily"" in places where many homeowners are facing foreclosures.
""FHFA proposed increasing state-level guarantee fees charged by Fannie Mae and Freddie Mac on new borrowers in the five states with the longest average foreclosure timelines,"" the letter states.
Such an action, the letter argues, could ""unfairly punish borrowers"" without actually addressing the factors leading to longer foreclosure timelines.
""For these reasons, we strongly urge you to nominate an FHFA Director who is ready to fulfill this mission and address the many challenges still facing the nationÃ¢â‚¬â„¢s housing finance markets,"" the letter concludes.