Fannie Mae and Freddie Mac, the two U.S. government-backed mortgage financing firms, would not take write-downs of delinquent mortgage, even subsidies offered by the Treasury Department, the companies' regulator announced Tuesday.
Months of analysis showed there would be no clear benefit to taxpayers if the Federal Housing Finance Agency (FHFA) were to change its long-standing policy barring the government-owned mortgage financing companies from loan modifications that include debt write-downs, Edward J. DeMarco, acting director of the agency, said at a press conference.
"We concluded the potential benefit was too small and uncertain relative to unknown costs and risks."
The decision came after mounting pressure to change the policy from activist groups and congressional Democrats, who said it could prevent more families from losing their homes to foreclosure.
Months ago, the Treasury offered Fannie Mae and Freddie Mac as much as 63 cents for every dollar of principal reduction. However, the FHFA was reluctant to take such subsidies, claiming it might encourage defaults among borrowers.
The original purpose of loan forgiveness is to help deeply " underwater" home owners, whose loan-to-value ratios are above 115 percent. But the most recent statistics from Fannie and Freddie showed that 74 percent of deeply underwater borrowers were current as of June 30 last year. It made the Treasury's offer like subsidizing people who can afford to pay.
While the government-sponsored firms might obtain net benefit from mortgage debt write-downs, taxpayers would still lose money as they would fund the program through the Treasury, according to a detailed analysis released by DeMarco.
Fannie Mae and its sibling company Freddie Mac have survived on Treasury aid since September 2008, when they were put under conservatorship by the federal government after suffering from the collapse of the subprime mortgage market.
Fannie Mae and Freddie Mac own or guarantee about half of all mortgages in the United States, or nearly 31 million home loans. As of year-end 2011, the two companies had sought aid of 187.5 billion U.S. dollars in total from U.S. government.
Months of analysis showed there would be no clear benefit to taxpayers if the Federal Housing Finance Agency (FHFA) were to change its long-standing policy barring the government-owned mortgage financing companies from loan modifications that include debt write-downs, Edward J. DeMarco, acting director of the agency, said at a press conference.
"We concluded the potential benefit was too small and uncertain relative to unknown costs and risks."
The decision came after mounting pressure to change the policy from activist groups and congressional Democrats, who said it could prevent more families from losing their homes to foreclosure.
Months ago, the Treasury offered Fannie Mae and Freddie Mac as much as 63 cents for every dollar of principal reduction. However, the FHFA was reluctant to take such subsidies, claiming it might encourage defaults among borrowers.
The original purpose of loan forgiveness is to help deeply " underwater" home owners, whose loan-to-value ratios are above 115 percent. But the most recent statistics from Fannie and Freddie showed that 74 percent of deeply underwater borrowers were current as of June 30 last year. It made the Treasury's offer like subsidizing people who can afford to pay.
While the government-sponsored firms might obtain net benefit from mortgage debt write-downs, taxpayers would still lose money as they would fund the program through the Treasury, according to a detailed analysis released by DeMarco.
Fannie Mae and its sibling company Freddie Mac have survived on Treasury aid since September 2008, when they were put under conservatorship by the federal government after suffering from the collapse of the subprime mortgage market.
Fannie Mae and Freddie Mac own or guarantee about half of all mortgages in the United States, or nearly 31 million home loans. As of year-end 2011, the two companies had sought aid of 187.5 billion U.S. dollars in total from U.S. government.
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