Treasury Secretary Timothy F. Geithner said two to three years of “aggressive, creative” programs are needed to help the U.S. recover from its housing crisis.
“We’re going to keep at this as long as necessary,” Geithner said at an event in Los Angeles today. “We think there’s a very good case for people deeply under water, experiencing hardship, to modify their mortgages by reducing principal.”
Government-sponsored enterprises Fannie Mae and Freddie Mac won’t forgive principal on delinquent mortgages they guarantee, the firms’ regulator said today. Months of analysis showed there would be no clear benefit to taxpayers if the Federal Housing Finance Agency were to change its policy barring the mortgage-finance companies from loan modifications that include debt writedowns, Edward J. DeMarco, the agency’s acting director, told reporters.
Geithner criticized the decision in a letter to DeMarco today. “I do not believe it is the best decision for the country,” Geithner wrote. “The use of targeted principal reductions by the GSEs would provide much-needed help to a significant number of troubled homeowners.”
DeMarco’s decision follows months of pressure to reverse the policy from activist groups and congressional Democrats, who touted it as a way to keep more families from losing their homes to foreclosure. FHFA has been in talks since January with Treasury officials, who offered Fannie Mae and Freddie Mac as much as 63 cents for each dollar of principal reduction, using unspent funds from the Troubled Asset Relief Program.
“What we’re going to try to do is continue to push as much as we can to get more relief for the housing market,” Geithner told the Los Angeles World Affairs Council. “One of the most powerful tools now you can do now for housing is make it easier for people to refinance their mortgages.”
DeMarco’s stand and Geithner’s letter reflect tension between FHFA, an independent agency, and President Barack Obama’s Democratic administration, which has pushed to expand aid for more than 11 million borrowers who owe more than their homes are worth in the wake of the 2008 financial crisis.
Fannie Mae, based in Washington, and Freddie Mac of McLean, Virginia, have drawn almost $190 billion in Treasury aid since they were taken under U.S. conservatorship in 2008 amid loan losses that pushed them to the brink of insolvency.
In other remarks, Geithner said Europe is “absolutely committed to doing what’s necessary” to resolve the continent’s debt crisis, one day after meeting with German Finance Minister Wolfgang Schaeuble and European Central Bank President Mario Draghi.
“This is completely within their financial ability to solve,” Geithner said. He added that “the politics of doing this are very hard.”