Tags: Fannie | Freddie | loan | Forgiveness

Report: Fannie, Freddie Believe Loan Forgiveness Cheaper

Monday, 26 March 2012 01:52 PM

Internal analyses of the housing-loan crisis by government mortgage giants Freddie Mac and Fannie Mae are at odds, insiders say, with the public view of its politically independent regulator.

It would be cheaper to forgive a portion of the principal owed on some mortgages, according to sources who spoke to public interest researcher ProPublica and NPR. They didn't name the sources.

“The two companies’ analyses showed that upwards of a quarter million borrowers who owe more on their mortgages than their homes are worth could benefit from principal reductions,” ProPublica published on their site, in conjunction with an NPR story.

Editor's Note: You Deserve to Know What Obama and Bernanke Are Hiding From Americans

“The companies would take a loss upfront, but over the long run these mortgage modifications would save the companies money because they would lead to lower default rates,” the analyses conclude, according to the sources.

This is a reversal of testimony from Edward DeMarco, the acting director of the Federal Housing Finance Agency. On Feb. 28, DeMarco told the Senate that the two companies told him that they believed writedowns would cost them money in the end.

Taxpayers have spent $150 billion so far to keep the housing entities afloat during the crisis.

“Both companies have been reviewing principal forgiveness alternatives. Both have advised me that they do not believe it is in the best interest of the companies to do so,” DeMarco told the Senate.

DeMarco told ProPublica in a statement that his office is now reviewing alternatives presented by the administration for principal reduction under existing programs.

Meanwhile, a burst of spring selling has led to slight setback in the housing market. The number of home sale contracts signed fell in February after hitting a two-year high.

The monthly read of the National Association of Realtors sales index is down by a half percent to 96.5. A number above 100 is considered a healthy market.

Homebuilders say the uptick is real, not a fluke in the numbers.

“In some of our submarkets, we are finding that homebuyers are no longer expecting home prices to decline further, which is creating some sense of urgency to buy now,” Jeffrey Mezger, president and chief executive officer of developer KB Home, recently told investors.

“Additionally, as rents continue to increase, prospective customers in many areas are now recognizing that they can own a home for a monthly payment lower than their rent,” he continued.

“It is now common for me to hear anecdotes regarding the customer who is visiting our sales office because their rent just increased.”

Editor's Note: You Deserve to Know What Obama and Bernanke Are Hiding From Americans

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Monday, 26 March 2012 01:52 PM
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