Fannie, Freddie loan write downs possible: regulator

Tue Apr 10, 2012 1:10pm EDT
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By Margaret Chadbourn

WASHINGTON (Reuters) - The regulator for Fannie Mae FNMA.OB and Freddie Mac FMCC.OB said on Tuesday it might make sense for the housing finance companies to write down loan principal under an Obama administration plan, but further study was needed.

The White House in January offered financial incentives to the two government-controlled mortgage market giants, which have been propped up with more than $150 billion in taxpayer funds, to help cover any increased costs they might face forgiving loan principal.

Edward DeMarco, the acting director of the Federal Housing Finance Agency, said a preliminary analysis showed the firms could save $1.7 billion under the plan to have Fannie Mae and Freddie Mac cut loan balances for so-called "underwater" borrowers who owe more than their homes are worth.

Delivering his remarks at a speech at the Brookings Institution, he said one aspect to be considered was that the program might encourage borrowers to strategically default to obtain aid, driving up the cost, and said that even if the companies saved money, taxpayers would still be on the hook for the financial incentives.

DeMarco also said the program would help only about one million borrowers, only a fraction of the estimated 11 million underwater U.S. homeowners nationwide.

"This is not about some huge difference-making program that will rescue the housing market," he said. "It is a debate about which tools, at the margin, better balance two goals: maximizing assistance to several hundred thousand homeowners while minimizing further cost to all other homeowners and taxpayers."

Before the incentives were on the table, DeMarco had maintained that Fannie Mae and Freddie Mac could provide as much relief to distressed borrowers at less cost to taxpayers through loan forbearance.

The two companies, which were seized by the government in 2008 as loan losses mounted, now finance about 60 percent of all new mortgages.   Continued...

A view shows the Fannie Mae logo at its headquarters in Washington March 30, 2012. REUTERS/Jonathan Ernst