F'EDERAL IIOI]SING I'II\ANCE AGENCY

Office of the Director

February 27,2012

The Honorable Kamala D. Harris Attorney General State of California

Street Suite 1740 Sacramento, CA 95814 1300

Dear Attorney General Harris: Thank you for your February 24fr letter. You asked me to direct a suspension of foreclosures in California of delinquent loans owned by Fannie Mae and Freddie Mac. I have considered your request and my answer is no. Numerous foreclosure slowdowns and moratoria have already taken place, each adding to the losses shifted to American taxpayers and further destabilizing neighborhoods.
Since entering conservatorship, Fannie Mae and Freddie Mac have been leaders in loan modifications and other foreclosure prevention transactions. Together, the two companies have undertaken more than two million foreclosure avoidance transactions, including more than one million loan modihcations. More than 85 percent of these transactions allowed the homeowner to retain homeownership. Moreover, Fannie Mae and Freddie Mac have been instrumental as the Treasury Department's financial agents in developing and maintaining the Home Affordable Modification Program (HAMP). Recognizing HAMP's limitations, the Federal Housing Finance Agency (FHFA) together with the two companies developed the so-called Standard Modification, which we introduced last year as part of the Servicing Alignment Initiative. The success of this modification program led the Treasury Department to recently expand HAMP to include the Standard Modification in the HAMP menu.

You asked me to undertake a review of principal forgiveness yet you know that FHFA has done this analysis on three different occasions. FHFA's decisions iegarding principal forgiveness are directly in line with our responsibilities and authorities as conservator and conform to prior actions taken to determine what form of loss mitigation activities-such as HAMP, the Home Affordable Refinance Program (HARP), unemployment forbearance, and support for short sale and other foreclosure avoidance devices-- would best meet those requirements. In our view, the proper measure of the benefit derived from reducing a borrower's loan balance is not calculated through a simple comparison of principal forgiveness to foreclosure; rather, the

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compadson must be to existing loss mitigation options that do not reduce principal. For example, Fannie Mae and Freddie Mac currently offer borrowers a HAMP modification that would restructure the monthly payment to 31 percent of the borrower's monthly income, the same as with the HAMP principal reduction alternative. The payment reduction for underwater borrowers is often achieved with a rate reduction, term extension, and principal forbearance. My previous public communications to Congress detail why FHFA has noi foun loan modification using principal forgiveness to be superior to or more effective than the tools currently being employed by the Enterprises.

You note the 49-state settlement, which has been announced but not yet published, as a reason to halt foreclosure activity. FHFA will examine the provisions of the agrement, when it is finalized and approved by the court, to see if any change in our ongoing efforts to assist borrowers and protect taxpayers is warranted.
There is no question that underwater borrowers in California would benefit from other taxpayers off the underwater portion of their mortgage debt. My obgtion to those taxpayers, including those living in California, is to ensure that th assistance offered to borrowers facing difficulty in making their mortgage payments maximizes the opportunity to assist those borrowers at minimum cost to taxpayers. The numerous foreclosure avoidance options offered to borrowers whose loans are owned by Fannie Mae or Freddie Mac, including multiple loan modification options, do just that. We will continue to consider alternatives as they are proposed, but I will not further delay foreclosures provided those borrowers have been given a meaningful opportunity to avail themselves of a loan modification or some other suitable foreclosure avoidance altemative.
across the United States paying

am glad to make my team available to you and your staff to review borrower assistance options. The point of contact for such discussions is Alfred Pollard, General Counsel of FHFA. Mr. Pollard may be reached at202-649- 3050.

Yours truly,

Edward J. DeMarco Acting Director