Housing and Urban Development (HUD) Secretary Shaun Donovan said his agency wants to encourage more principal write-downs to keep people in their homes, even when those loans are backed by Fannie Mae and Freddie Mac.
“There is increasing data available, we believe, that shows that… principal reduction can be good not only for homeowners and communities, but for investors as well,” Donovan testified Wednesday before the Senate Banking Committee. “It can allow people to pay [their bills], stay in their homes and increase the value of those mortgages.”
That feeling isn’t shared, however, by the head of the independent agency that regulates Fannie and Freddie. Edward DeMarco, acting director of the Federal Housing Finance Agency (FHFA), told the same Senate panel that while he has the authority to reduce mortgage principal to prevent foreclosures, he won’t use it because other tools are more effective.
Of the four primary foreclosure-fighting powers available to FHFA – reducing interest rates, extending the length of loans, principal forbearance and principal forgiveness – the last, DeMarco said, is the least valuable to regulators trying to repay the taxpayers who bailed out Freddie and Fannie more than three years ago.
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