Principal-Reduction Calls Confront FHFA’s Watt as He Touts HARPClea Benson
The U.S. overseer of Fannie Mae and Freddie Mac, visiting Detroit to promote aid for underwater homeowners who’ve kept up loan payments, found himself confronted by protesters complaining that he’s not doing enough to help those who have fallen behind.
Melvin L. Watt, director of the Federal Housing Finance Agency, appeared yesterday at the main branch of the Detroit Public Library and urged officials to spread the word to 27,000 eligible local borrowers that they could save hundreds of dollars a month through the Home Affordable Refinancing Program.
In a city such as Detroit, where 40 percent of homeowners owe more on mortgages than the properties are worth and nearly 10 percent are behind on payments, that’s not nearly enough, said Steve Babson, a spokesman for Save Detroit -- Save Our Homes. He faulted Watt for failing to lift a ban on debt cuts for distressed borrowers in his nine months on the job.
“What we need in Detroit is a program that will address the thousands of people who are already in default, who are dealing with unemployment, medical costs,” Babson said as dozens of picketers marched in front of the library. “And we need a program that addresses them with principal reduction.”
Watt, who was appointed to the FHFA post by President Barack Obama at the behest of borrower advocates, is finding himself at the center of the same controversy that dogged his predecessor, Edward J. DeMarco. DeMarco barred the debt reductions on the grounds that they would cost taxpayers. Protesters last year showed up on the lawn of DeMarco’s house in suburban Maryland and urged the president to replace him.
FHFA is still studying the issue, said Watt, a North Carolina Democrat who served on the House Financial Services Committee before leaving Congress to join the regulator.
“We are still looking at principal reduction, and we are doing it in a thoughtful, careful way,” he said as he stood onstage taking questions at the library.
During his time as the nation’s most powerful housing regulator, setting policy for $5 trillion in mortgages backed by Fannie Mae and Freddie Mac, Watt has been campaigning on behalf of the less-controversial HARP program, which has enabled 3.2 million borrowers to cut payments by lowering interest rates since it began in 2009.
About 500,000 of those HARP refinances came in the last year alone as the agency marketed the program in areas such as Detroit and Atlanta with the largest home-price declines.
Obama’s advisers originally estimated that HARP could help 4 million to 5 million borrowers. There are about 800,000 borrowers nationwide who could still benefit, FHFA says.
To qualify for a HARP loan, borrowers must be current on their payments and have mortgages originated before June 2009 that are backed by either Fannie Mae or Freddie Mac and have less than 20 percent equity in their homes.
HARP is “inadequate,” Babson said. “We don’t need just lower interest on an inflated mortgage balance. We need principal reduction.”
Under Watt, FHFA is poised to allow principal reductions through a back-door route for borrowers in Detroit called the Neighborhood Stabilization Initiative: Starting this fall, Fannie Mae and Freddie Mac will begin selling loans to nonprofit groups that can reduce the principal balance if they believe it helps keep borrowers in their homes.
FHFA until now has refused to allow foreclosed properties backed by the U.S.-owned companies to be transferred to nonprofits that sell them back to the original owners at the current market price. The ban has affected such transfers in Boston at a program run by nonprofit Boston Community Capital. Massachusetts Attorney General Martha Coakley sued FHFA in June, alleging that the refusal violated a state foreclosure-prevention law.
At the Detroit meeting, Watt took questions from a line of local residents with complaints about how government mortgage-aid programs had fallen short.
“There are lots of people like me out here, hurting bad, because you put everything into your home, and then it gets taken from you,” said S. Baxter Jones, 58, a former Detroit schoolteacher who lost his job after an accident that left him in a wheelchair. Jones said his Fannie Mae-backed loan went through foreclosure even as he was trying to qualify for disability payments and a modified loan.
At the end, Watt thanked the crowd for its feedback.
“I can’t tell you that we can solve every problem, that there haven’t been problems in the past,” he said. “But I hope at the end of the day the message is that we are trying to help.”