Oversight Leaders Caution FHFA Head DeMarco to Resist Political Pressure to Enact Taxpayer-Funded Principal-Reduction Program
Proposal has risk of becoming backdoor bailout for banks, costing taxpayers billions, Issa and McHenry write
(WASHINGTON)—Two Oversight Committee leaders have written to Fannie Mae and Freddie Mac’s conservator saying the independent agency he leads should not succumb to intense political pressure regarding its pending decision of proposed mortgage principle reduction by the Obama Administration and its political allies.
Committee Chairman Darrell Issa (R-CA) and Subcommittee on TARP, Financial Services and Bailouts of Public and Private Programs Chairman Patrick McHenry (R-NC) wrote to Federal Housing Finance Agency (FHFA) Acting Director Edward DeMarco urging him to remain steadfast and carefully evaluate relevant information prior to making a decision that could cost taxpayers billions if the government were to pay down the principal value of underwater mortgages for select homeowners.
“As conservator of Fannie Mae and Freddie Mac, you have a unique obligation to preserve and conserve the assets and property of [Fannie and Freddie],” Issa and McHenry wrote. They pointed out that the California Attorney General and Obama Administration officials have all publicly pressured DeMarco to enact a principal reduction program for homeowners whose property loans exceed the value of the property itself and whose loans are owned by Fannie Mae or Freddie Mac.
“We regret that the tenor of the housing debate in this country has become increasingly politicized and that your integrity and independence of your office have been directly challenged,” the lawmakers’ letter said. “In addition, these pilot programs illuminated operational concerns associated with implementing principal reduction on a large scale.”
The letter from Chairman Issa and Chairman McHenry noted that recent principal reduction programs approved by Fannie and Freddie have not demonstrated added benefit to homeowners. They pointed out that the risk to taxpayers from such a program was great and cited a recent letter from DeMarco to Oversight Committee Ranking Member Elijah Cummings (D-MD) indicating the total cost of principal forgiveness required to mortgages in line with present property values approaches $100 billion.
Issa and McHenry also noted that DeMacro had recently stated that even when combined with other government agency incentives to lenders, the implied cost to taxpayers is $2.1 billion. These incentives included Treasury Department proposed use of Home Affordable Modification Program (HAMP) funds distributed from an un-used pool of Troubled Asset Relief (TARP) funds. They said that the proposed use of these funds goes well beyond the program’s original statutory mandate and furthers the use of HAMP money as a “housing slush fund from which the Treasury Secretary may direct money to politically expedient uses.” They also cautioned about the use of these funds as a “backdoor bailout” for banks holding second liens on Fannie or Freddie-guaranteed properties.
A copy of the letter is available here.