Archived: Reducing Freddie and Fannie Loans Underwater Makes Sense


The refusal of the Federal Housing Finance Agency to allow Fannie Mae and Freddie Mac to allow some 2.6 million borrowers whose home loans are underwater to receive a mortgage principal reduction makes absolutely no sense.

According to Edward DeMarco, acting administrator of the agency, the decision protects taxpayers. His reason? DeMarco says allowing a large-scale reduction in principals would hurt taxpayers who are on the hook for some $142 billion that was spent to rescue both lenders.

The Obama Administration pushed the mortgage reduction plan for distressed homeowners, seeing it as a way to reduce foreclosures and help the economic recovery.

The fact of the matter is that many of the underwater homeowners will never be able to pay back the original amount on their loans, nor will those homes any time soon recoup the value of the amount that would be forgiven by Fannie or Freddie. So in reality, the taxpayers are already on the hook for the $142 billion of worthless paper if not more.

It seems a lot more sensible for Freddie Mac and Fannie Mae to accept the actual value of the mortgages, saving some home owners from losing their homes, stabilizing communities from more turmoil as homes continue to go into foreclosure.

Many of the big, private banks are already taking this step for some of their delinquent mortgage holders, but they are prohibited from doing the same for Freddie Mac or Fannie Mae loans.

That makes no sense.

When a home goes into foreclosure and is sold or auctioned off, rarely is it purchased for the full amount owed by the foreclosed on homeowner. So where’s the value to taxpayers DeMarco says he is protecting?

We would just throw our hands up in the air over this silly type of reasoning, if it were not for the fact that it’s harming a lot of people.

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