Fannie, Freddie Won’t Cut Loan Balances
The federal regulator for Fannie Mae and Freddie Mac FMCC -1.68% will not permit the taxpayer-supported mortgage giants to participate in an Obama administration program that reduces mortgage balances for certain troubled homeowners, the agency said on Tuesday.
The Treasury Department, which had put heavy political pressure on the Federal Housing Finance Agency to permit the companies to participate in a limited program of debt forgiveness, immediately responded by questioning the regulator’s assumptions and asking the agency to reconsider.
In January, the Treasury sought to undercut concerns about the cost of such a program by offering unspent housing-aid funds to subsidize potential loan write-downs. But the regulator on Tuesday said the potential savings that a new loan-modification program might generate weren’t overwhelming enough to trump potential costs, including the risk that homeowners who are current on their payments might default to seek better terms.
“The potential benefit was too small and uncertain relative to known and unknown costs and risks,” said Edward DeMarco, the FHFA’s acting director, in a briefing on Tuesday.
The decision marks the most public disagreement between the Federal Housing Finance Agency and the Treasury Department, which seized Fannie and Freddie four years ago.
Copy of Geithner’s letter below…