U.S. Treasury Secretary Timothy F. Geithner told a U.S. Senate panel that he believes Fannie Mae and Freddie Mac should reduce principal on some home mortgages.
“We’ve been encouraging Fannie and Freddie to take another look at the map, at the economics of the finance because we think there is a strong case in some circumstances to add principal reduction as part of their strategies to help maximize return of the taxpayer,” Geithner testified today to a subcommittee of the Senate Appropriations Committee.
At the end of last year 12.1 percent of mortgages were delinquent or in foreclosure, compared with 12.4 percent a year earlier, according to the U.S. Office of the Comptroller of the Currency.
Fannie Mae and Freddie Mac, the mortgage finance companies under government conservatorship since 2008, haven’t granted principal reductions because it would cost the taxpayer-funded companies almost $100 billion, Edward DeMarco, the acting director of the Federal Housing Finance Agency, said in a Jan. 20 letter to Congress. The agency oversees Fannie Mae and Freddie Mac.
“What Mr. DeMarco has said is that they are taking another look at their numbers, looking at our economic case. We are in the process of working through that with him and I hope he is going to be in a position to indicate what he plans to do in the next several weeks,” Geithner said. “This is an important part of a credible national strategy that they have been reluctant to move even though they have done a lot of things that are very very helpful.”
The FHFA will release a study next month about whether it makes sense to allow forgiveness on underwater loans guaranteed by Fannie Mae and Freddie Mac, according to DeMarco.
“We are offering a rich array of tools to help borrowers with their mortgage payments,” DeMarco said today on Bloomberg Television’s “Street Smart” program with Trish Regan.
Three out of four borrowers with GSE loans who owe more than their homes are worth are current on their mortgages, DeMarco said.