DEPARTMENTOFTHETREASURY
WASHINGTON,D.C.
SECRETARYOFTHETREASURY
July31,2012FederalHousingFinanceAgencyOfficeoftheDirector1700GStreetN.W.Washington,D.C.20552-0003DearActingDirectorDeMarco,IamwritinginresponsetothedecisionsannouncedinyourlettertoCongresstoday.WhileIwasencouragedthattheFederalHousingFinanceAgency(FHFA)ismakingprogressonsomeinitiativeswehavediscussedthatwillhelpthehousingmarketrecover,IamconcernedbyyourcontinuedoppositiontoallowingFannieMaeandFreddieMac(GSEs)tousetargetedprincipalreductionintheirloanmodificationprograms.FHFAisanindependentfederalagency,andIrecognizethat,asitsActingDirector,youhavethesolelegalauthoritytomakethisdecision.However,Idonotbelieveitisthebestdecisionforthecountry,because,aswehavediscussedmanytimes,theuseoftargetedprincipalreductionbytheGSEswouldprovidemuchneededhelptoasignificantnumberoftroubledhomeowners,helprepairthenation'shousingmarket,andresultinanetbenefittotaxpayers.Indeed,notwithstandingtheselectivenumberscitedinyourletter,FHFA'sownanalysis,whichyouhavesharedwithuspreviously,hasshownthatpermittingtheGSEstoparticipateinthePrincipalReductionAlternativeprogram(HAMP-PRA)couldhelpuptohalfamillionhomeownersandresultinsavingstotheGSEsof$3.6billioncomparedtostandardGSEloanmodifications.Furthermore,iftheGSEsweretoparticipateinHAMP-PRA,taxpayerswouldsaveasmuchas$1billiononanetbasis.InviewoftheclearbenefitsthattheuseofprincipalreductionbytheGSEswouldhaveforhomeowners,thehousingmarket,andtaxpayers,Iurgeyoutoreconsiderthisdecision.IhaveaskedMichaelStegmanofmystafftorestateinwritingforyouthecaseforprincipalreduction,consistentwithFHFA'smandatesasconservatorandregulatoroftheGSEs,thattheTreasuryhasmadetoyouandyourstaffoverthelastseveralmonths.Hismemorandumisenclosed.TreasurystandsreadytoprovideanyadditionalanalyticalsupporttomakeatargetedprincipalreductionprogramattheGSEssuccessful.Wewelcomethepositivestepsyouannouncedtodayregardingfurtherrefinancingopportunities,providingclaritytolendersonlegalexposures,aligningshortsalepractices,andputtingforeclosedpropertiesbackonthemarket.Allofthesehavethepotentialtohelpadvancerecoveryofthehousingmarket.Aswehavepreviouslydiscussed,theimpactofthesestepswilldependonthespeedwithwhichyouactandtheextentofthechangesyoumake.
Fiveyearsintothehousingcrisis,millionsofhomeownersarestillstrugglingtostayintheirhomes,andthelegacyofthecrisiscontinuestoweighonthemarket.Youhavethepowertohelpmorestrugglinghomeownersandhelphealtheremainingdamagefromthehousingcrisis.Ihopeyouwillmovetoaddresstheseproblemswithasenseofurgencyandforcecommensuratewiththescaleoftheremainingchallenges.
DEPARTMENTOFTHETREASURY
WASHINGTON,D.C.20220
July31,2012MEMORANDUMTO:ActingDirectorEdDeMarcoFROM:MichaelStegman,CounselorforHousingFinancePolicyRE:TheCaseforPrincipalReductionSecretaryGeithneraskedmetosummarizebelowthecaseforusingprincipalreductioninatargetedmannerthattheTreasuryhasmadetoyouandyourstaffoverthelastseveralmonths.
Principalreductionbenefitsindividualhomeownersandthehousingmarketasawhole.
Theuseoftargetedprincipalreductionisbeneficialforseveralreasons.Itprovidesrelieftoasignificantnumberofunderwatertroubledhomeowners,helpsrepairthehousingmarketandminimizestaxpayerlosses.Thebasisforthisjudgment,whichisconsistentwithFannieMae'sstudyofHomeAffordableModificationProgram(RAMP)performancedataandthebehaviorofprivatelendersandinvestors,isthatacarefullydesigned,targetedprogramofprincipalreductioniseffectiveinreducingtheriskofre-defaultbyborrowerswhoreceiveloanmodifications.InJune2010,TreasuryintroducedprincipalreductionaspartoftheMakingHomeAffordableprogram(HAMP-PRA)tohelpcertainunderwaterborrowerswhoarestrugglingtoavoidforeclosureandimprovecommunityandhousingmarketstability.Underthisprogram,financialincentivesarepaidtoinvestorsasapercentageofeachdollarofprincipalreduction.Borrowersareeligibleonlyiftheyfaceafinancialhardshipanddemonstrateanabilitytopaythemodifiedmortgageamount.Moreover,participatingservicersareencouragedtoreduceprincipalonlywhenthemodificationmakeseconomicsensefortheinvestor,takingintoaccountthecostofmodificationandtherisk(andpotentialcost)offoreclosure.TheavailableevidenceonRAMP-PRA,aswellasindustrypractice,indicatesthattargetedprincipalreductionmakeseconomicsensefortheholderofthecreditrisk,beitabankholdingtheloaninportfolio,investorsinprivatelabelsecurities,orFannieMaeandFreddieMac(GSEs)forloanstheyguarantee.FannieMae,actingasTreasury'sagent,analyzedRAMPmodificationperformancedatawithandwithoutprincipalreduction.
1
Thisanalysisshowsthatsixmonthsfollowingmodification,controllingforloanandborrowercharacteristics,there-defaultratewaslowerforloansthatweremodifiedwithprincipalreductionthanthere-defaultrateforloansthatweremodifiedwith
1
U.S.DepartmentoftheTreasury,TheEffectsofthePrincipalReductionAlternative(PRA)onRe-defaultRates
in
theHomeAffordableModificationProgram(HAMP):EarlyResults,July2012.SummaryofresearchperformedbyFannieMae.
1
Search History:
Result 00 of 00
00 results for result for
p.
Letter to FHFA
4closureFraud.org
330
Reads
1
Readcasts
3.4K
Embed Views
Get Scribd Mobile
To get Scribd mobile enter your number and we'll send you a link to the Scribd app for iPhone & Android.We've sent a link to the Scribd app. If you didn't receive it, try again.
We'll never share your phone number.
Recommended
More From This User
Notes
Load more
