California Attorney General Kamala Harris urged the federal regulator overseeing Fannie Mae and Freddie Mac to halt foreclosures on loans and consider debt forgiveness for homeowners in the most populous state.
In a letter to Edward DeMarco, acting director of the Federal Housing Finance Agency, Harris requested a suspension of foreclosure sales in California for the more than 60 percent of loans in the state owned or guaranteed by Fannie Mae or Freddie Mac, which together back most U.S. mortgages.
Harris wants the sales halted until “your agency has completed a thorough, transparent analysis of whether principal reduction is in the best interests of struggling homeowners as well as taxpayers,” according to the Feb. 24 letter.
The letter escalates a debate over the best way to ameliorate the U.S. housing crisis. In November, after DeMarco resisted widespread cuts to mortgage balances on grounds they may encourage more homeowners to default, Harris, a Democrat, called on him to resign.
More than 500,000 Californians have lost their homes to foreclosure since 2008, and another 500,000 homes are in the process, or at “imminent risk,” of foreclosure so far in 2012, Harris said in the letter. Nationwide, the market for agency mortgage securities guaranteed by Fannie Mae, Freddie Mac or government-owned Ginnie Mae totals about $5.4 trillion.
$25 Billion Settlement
Stefanie Johnson, a Federal Housing Finance Agency spokeswoman, didn’t immediately return a call seeking comment on the letter. The FHFA regulates Fannie Mae and Freddie Mac.
Harris’s letter referenced the $25 billion settlement Bank of America Corp., JPMorgan Chase & Co., Wells Fargo & Co., Citigroup Inc. and Ally Financial Inc. reached Feb. 9 with 49 states and the federal government to end a probe of abusive foreclosure practices stemming from the collapse of the housing bubble. The banks committed $20 billion in various forms of mortgage relief plus payments of $5 billion to state and federal governments.
The settlement doesn’t cover loans owned or guaranteed by Fannie Mae or Freddie Mac because, Harris wrote, DeMarco has “consistently declined to authorize principal reduction programs.”
In November, Harris said that if DeMarco is unwilling to support principal reductions for borrowers in crisis, he should “step aside for someone who will.”
In December, Harris sued Fannie Mae and Freddie Mac, saying they were stonewalling her effort to learn if drug dealing and prostitution occur in foreclosed homes owned by the companies, whether taxes are being paid on those houses, and whether military families have been illegally evicted by loan servicers. The suit claimed that by failing to respond to questions on those subjects, the companies were frustrating Harris’s efforts to combat crime, blight and investigate health threats.
In the Feb. 24 letter, Harris said California extracted agreements from banks for principal reductions and short sales for borrowers worth a minimum of $12 billion. She said that compared to foreclosures, principal reductions offer the most help for homeowners, are the most cost effective for investors, and, according to the FHFA’s most recent data, of all available alternatives, would best serve taxpayer interests toward resolving the housing crisis.
Fannie Mae, based in Washington, and Freddie Mac were seized and placed under U.S. control in 2008 as losses on soured loans pushed them to the brink of insolvency. The two have been sustained by more than $150 billion in U.S. aid.