The federal regulator overseeing Fannie Mae and Freddie Mac said onTuesday that he would not allow the government sponsored enterprises (GSEs) to reduce loan balances of delinquent and underwater borrowers, claiming in a 15-page report that there was no clear cut financial benefits, and such a move could trigger some borrowers to intentionally default on their mortgage loans in the hopes of a taxpayer bailout.
Edward DeMarco, the acting head of the Federal Housing Finance Agency (FAFA), the regulator that oversees both Fannie and Freddie, has refused to modify underwater and delinquent mortgages held by the two GSEs, which are under government receivership. He said Fannie and Freddie would not participate in the Obama administration’s Home Affordable Modification Program Principal Reduction Alternative, or 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,” said DeMarco in a prepared statement. “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.”
Readers what do you think? Is DeMarco right to slam shut the refinancing door to hundreds of thousands of beleaguered borrowers? Or should the federal government bailout distressed homeowners like it bailed out Wall Street?