Forgiving mortgage debt on Fannie Mae and Freddie Mac loans would cost the taxpayer-funded companies almost $100 billion, their regulator said.
The Federal Housing Finance Agency said that as of June 30, the companies guaranteed nearly 3 million mortgages on single-family homes that are underwater, or worth less than the loans they secure.
“FHFA estimates that principal forgiveness for all of these mortgages would require funding of almost $100 billion,” FHFA Acting Director Edward J. DeMarco said in a Jan. 20 letter to Representative Elijah Cummings, a Maryland Democrat who had threatened to subpoena the information. The FHFA posted the letter on its website today.
Nearly 80 percent of the Fannie Mae and Freddie Mac borrowers with negative equity were current on their payments, DeMarco said.
DeMarco, whose agency was created by Congress to minimize losses at Fannie Mae and Freddie Mac and is independent of President Barack Obama’s administration, has maintained that principal forgiveness would increase the size of the government’s bailout of the companies, which have cost taxpayers more than $153 billion since they were taken under government control in 2008.
The agency compared the cost of principal forgiveness to the companies’ current practice of forbearance, which allows delinquent borrowers to defer payments.
“Given that any money spent on this endeavor would ultimately come from taxpayers and given that our analysis does not indicate a preservation of assets for Fannie Mae and Freddie Mac substantial enough to offset costs, an expenditure of this nature at this time would, in my judgment, require congressional action,” he said.
Cummings, the top Democrat on the House Oversight and Government Reform Committee who sought to subpoena the analysis last week, was reviewing the letter and had no immediate comment, said Jennifer Hoffman, Cummings’ spokeswoman.
Consumer groups, labor unions, social justice advocates and some economists are pressuring Washington policymakers to force Fannie Mae and Freddie Mac to do more to help homeowners dig out of a decline in home prices that has cost borrowers some $7 trillion in household wealth since 2006. Helping borrowers would save taxpayers money in the long run by minimizing defaults, according to some analyses.