Homeowner advocates say that the Federal Housing Finance Authority, the independent U.S. agency that oversees mortgage giants Fannie Mae and Freddie Mac, is taking to long to help the most-troubled borrowers reduce principal payments.
This is not a new complaint, since the Fannie-Freddie overseer, under previous leadership, rejected a proposal from the Treasury Department to help homeowners avoid foreclosure by allowing for permanent reductions in mortgage balances.
Many of these loans were initiated in the buildup to the financial crisis of 2007-2008, and many lenders have been forced into billion-dollar settlements, with some consumer relief, for their wrongdoing or deficiencies in originating these loans.
But the money flowing from these settlements with JPMorgan Chase, Bank of America, Wells Fargo, Citi and others have not offered much in the form of mortgage principal reductions, say housing activists.
Moreover, inaction by the FHFA, led now Mel Watt, limits the kind of help the government can offer homeowners, Kevin Whelan, national campaign director of the Home Defenders League, told the New York Post.
“If the loan is ensured or owned by Fannie or Freddie, which most loans are, you cannot do principal reduction on it,” Whelan told The Post.
Whelan told the Post he’s been disappointed by the FHFA since the Senate approved Watt, Pres. Obama’s pick for the agency, at the start of the year. Instead of principal reduction, the FHFA supports the more bank-friendly principal forbearance — that’s when the paying-off part of the equity is deferred, instead of written off or forgiven.
With forbearance, homeowners still owe the deferred amount. But under principal forgiveness, part of the mortgage is eliminated and never owed again.
The FHFA is currently testing a program in Detroit where Fannie and Freddie would, in partnership with nonprofit companies, lower principal on homes in some of the hardest-hit communities, according to a May speech Watt gave at the Brookings Institute.
“FHFA expects to use the experiences in Detroit to expand this initiative to other parts of the country,” he said at the time. “We believe this will be a win-win for hardest-hit communities and for our conservatorship objectives.”
But consumer advocates say this pilot program is moving too slow to help desperate homeowners.