Letter To President, Congressional Leadership Calls Fannie Mae And Freddie Mac An “Obstacle To Progress” For Nation’s Homeowners; Stresses The Need For Principal Write-Downs
Schneiderman: DeMarco’s Refusal To Allow Principal Write-Downs Is A Direct Impediment To Economic Recovery
NEW YORK –Attorney General Eric T. Schneiderman today joined Massachusetts Attorney General Martha Coakley in leading a nine state coalition demanding new, permanent leadership at the Federal Housing and Finance Agency, the agency that oversees Fannie Mae and Freddie Mac. In a letter to the President and Congressional leaders, the attorneys general write that under the current leadership of the FHFA’s Acting Director Edward DeMarco, Fannie Mae and Freddie Mac have been a “direct impediment to our economic recovery” by the continued refusal to give principal relief for struggling homeowners, and call for a new permanent leader to replace DeMarco, an appointee of former President George W. Bush.
“The FHFA’s refusal to allow for principal write-downs that would result in more loan modifications is a direct impediment to our economic recovery and stands in way of our efforts to provide much needed assistance to homeowners in New York and across the country,” said Attorney General Schneiderman. “Under the leadership of Acting FHFA Director Edward DeMarco, Fannie Mae and Freddie Mac remain an obstacle to progress by refusing to adopt policies that will help maximize relief for struggling homeowners. The time has come for the President and Congress to work together to install a new, permanent leader at FHFA that will be a partner, not an impediment, in the national effort to comprehensively address the foreclosure crisis.”
In the letter, the attorneys general argue that principal write-downs are a central component of the national settlement, and continue to bring meaningful relief to distressed borrowers, spurring our nation’s economic recovery. Principal reduction is a form of loan forgiveness that would help “underwater” borrowers whose mortgages are worth more than their homes.
In general, all loan modifications rely on a net-present value (NPV) analysis that serves the dual purposes of helping borrowers keep their homes and meeting the economic interests of lenders and investors. The positive impact of mortgage modifications which often include principal write-downs continues to be felt on the housing market, economy, and our local communities.
The FHFA's continued position that principal forgiveness conflicts with its goal of asset preservation is “not supported by reality,” the attorneys general assert in the letter. The agency’s current policy actually reduces the value of its holdings portfolio. It is far more profitable for any financial institution to hold a portfolio of performing $200,000 mortgages that lets families keep their homes than a portfolio of non-performing $250,000 mortgages headed toward default.
“We have worked tirelessly, along with our federal, state, and local partners to develop a multi-pronged approach to dealing with the foreclosure crisis,” the letter concludes. “Fannie Mae and Freddie Mac should be among our partners in this effort, and leaders in the arena of loan modification best practices. Instead, they have been an obstruction.”
Last year, Attorney General Schneiderman led the negotiation of a National Mortgage Settlement under which the five largest mortgage servicers have agreed to a $25 billion penalty under a joint state-national settlement structure. A minimum of $17 billion goes directly to borrowers nationally through a series of homeowner relief efforts, including principal reduction. Servicers have also committed $3 billion to an underwater mortgage refinancing program for homeowners whose mortgages are worth more than the value of their homes.
To date, 21,535 New York homeowners have received $1.8 billion in assistance, including $1.2 billion in principal reductions on 1st and 2nd mortgages and mortgage refinances that lower interest rates on their loans.
The National Mortgage Settlement is the largest joint state-federal settlement in history and it is the result of a massive civil law enforcement investigation and initiative by state attorneys general, state banking regulators, and nearly a dozen federal agencies. The agreement was with the nation’s five largest servicers: Bank of America Corporation, JPMorgan Chase & Co., Wells Fargo & Company, Citigroup, Inc., and Ally Financial, Inc. (formerly GMAC). Collectively, the five banks service nearly 60 percent of the nation’s mortgages.
Using a portion of New York’s share of the National Mortgage Settlement, in June 2012, Attorney General Schneiderman announced the launch of the Homeowner Protection Program, his office’s commitment of $60 million over three years to fund housing counseling and legal services for struggling New York homeowners. Throughout this program, 35 legal services organizations and 59 housing counseling agencies statewide will receive funding to provide free foreclosure prevention services. By supporting the work of direct service providers who specialize in delivery of assistance to at-risk homeowners affected by foreclosures, this effort will minimize homeowner displacement and foster the stabilization of neighborhoods across the state for the benefit of the public and the State as a whole.
Below is a full copy of Attorney General Schneiderman’s letter:
March 15, 2013
President Barack Obama
The White House
1600 Pennsylvania Avenue NW
Washington, D.C. 20500
The Honorable Harry Reid
Senate Majority Leader
S-221 U.S. Capitol
Washington, D.C. 20510
The Honorable Mitch McConnell
Senate Minority Leader
S-230 U.S. Capitol
Washington, D.C. 20510
Re: New, permanent leadership at Federal Housing Finance Agency
Dear President Obama, Senate Majority Leader Reid, and Senate Minority Leader McConnell:
We write to urge you to expeditiously appoint and approve new, permanent leadership to the Federal Housing Finance Agency (FHFA). As state Attorneys General, we have spent the last several years grappling with the negative impacts of subprime and predatory lending practices and the resulting foreclosure crisis. Through actions against major banks and financial institutions, as well as innovative policy initiatives, we have brought a measure of relief to homeowners and stability to our economy.
Loan modifications are a key component of bringing relief to distressed borrowers and spurring our nation's economic recovery. These modifications have generally relied on a netpresent value (NPV) analysis, which serves the dual purposes of helping borrowers remain in their homes and meeting the economic interests of lenders and investors. We have seen firsthand the positive impact of mortgage modifications, often including principal write-downs, on our housing market, economy, and communities. In fact, principal write-downs are a central component of the national settlement, negotiated by the federal government and a bi-partisan group of 49 state attorneys general, that was entered into with five major banks approximately one year ago.
When loan modifications employ principal write-downs as necessary to create an affordable modified loan, countless more families will avoid unnecessary foreclosure. Unfortunately, under the leadership of Acting FHFA Director Edward DeMarco, Fannie Mae and Freddie Mac remain an obstacle to progress by refusing to adopt policies that will help maximize relief for homeowners. In particular, FHFA's refusal to adjust its policies to allow for principal forgiveness and forbearance stands as a major impediment to addressing the foreclosure crisis.
FHFA's continued position that principal forgiveness conflicts with its goal of asset preservation is not supported by reality. The FHFA's current policy actually reduces the value of its holdings portfolio. It is far more profitable for any financial institution to hold a portfolio of performing $200,000 mortgages that keeps families in their homes than a portfolio of non-performing $250,000 mortgages headed toward default.
FHFA's recalcitrance remains despite overwhelming evidence that mortgage modifications guided by a net-present value analysis, often including principal write-downs, provide significant dividends. Moreover, FHFA's refusal to consider principal write-downs as part of a comprehensive mortgage modification policy is inconsistent with its combined goal of asset preservation and foreclosure prevention. Simply put, by refusing to allow for principal write-downs that would result in more loan modifications, FHFA stands as a direct impediment to our economic recovery.
We have worked tirelessly, along with our federal, state, and local partners to develop a multi-pronged approach to dealing with the foreclosure crisis. Fannie Mae and Freddie Mac should be among our partners in this effort, and leaders in the arena of loan modification best practices. Instead, they have been an obstruction. We believe that until new, permanent leadership is named to FHFA, they will continue to stand as a roadblock to comprehensively addressing the foreclosure crisis.
Thank you for your consideration.
Cordially,
Eric T. Schneiderman
New York Attorney General
Martha Coakley
Massachusetts Attorney General
Kamala D. Harris
California Attorney General
Joseph R. "Beau" Biden, III
Delaware Attorney General
Lisa Madigan
Illinois Attorney General
Douglas F. Gansler
Maryland Attorney General
Catherine Cortez Masto
Nevada Attorney General
Ellen Rosenblum
Oregon Attorney General
Bob Ferguson
Washington Attorney General
A copy of today’s letter can also be read here: www.ag.ny.gov/pdfs/FHFA-joint-AG-letter.pdf