(Source: Attorney General Eric T. Schneiderman) -- Attorney General Eric T. Schneiderman today applauded President Obama for nominating Mel Watt as the permanent head of Federal Housing and Finance Agency (FHFA), the agency that oversees Fannie Mae and Freddie Mac, but called on him to take immediate action to replace acting FHFA Director Edward DeMarco with a new acting director who will allow principal relief for struggling homeowners.
“I applaud the President for finally moving to nominate a permanent head of the Federal Housing Finance Agency,” said Attorney General Schneiderman. “As I have consistently said, the FHFA’s refusal to allow 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. This nomination is a good first step, but struggling homeowners cannot afford to wait for the Senate to complete the confirmation process. The President should use his legal authority to replace Edward DeMarco with a new acting director who will start the effort to put FHFA on the side of working families immediately.”
Every day that passes, thousands of American homeowners are at greater risk of entering foreclosures because Fannie Mae and Freddie Mac have refused to allow principal write-downs for underwater mortgages under DeMarco’s leadership. According to the Mortgage Bankers Association, every three months, 250,000 new families enter into foreclosure. Roughly 60 percent of all mortgages in the United States are owned by Fannie Mae and Freddie Mac.
Last month, Attorney General Schneiderman led a multi-state coalition of state Attorneys General who wrote the President and Congressional leaders urging swift action to replace DeMarco with a new FHFA director.
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.
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.
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.
Source: Attorney General Eric T. Schneiderman