Federal Regulator is Using Seriously Flawed Study to Deny Homeowners Mortgage Aid
Progressive Democrats in Congress have been calling for President Obama to fire Edward DeMarco, the head of the Federal Housing Finance Agency, for DeMarco’s refusal to grant government sponsored mortgage giants Fannie Mae and Freddie Mac the ability to write down mortgages on a wide scale. As the regulator of Fannie and Freddie, it is the FHFA, and ultimately DeMarco, that decides how much relief the mortgage giants will provide to troubled homeowners.
DeMarco has been justifying his stance by pointing to a study claiming that widespread reduction of mortgage principal would cost taxpayers $100 billion. But this week, an analyst from broker-dealer Amherst Securities said told a Senate subcommittee that DeMarco’s estimate is bunk:
Federal Housing Finance Agency analysis used to prevent principal reduction on Fannie Mae and Freddie Mac loans was seriously flawed, according to one leading analyst.
“We have reviewed the study and have a number of very substantial objections,” said Amherst Securities Senior Managing Director Laurie Goodman before a Senate subcommittee Thursday, who gathered additional data via telephone.
Goodman cited several problems with the study, including that it did not factor in bank incentives from the Home Affordable Modification Program (HAMP) and underestimated the number of homeowners severely underwater by not using city level housing data. She said that it the study was done correctly, “it will be clear that forgiveness is the better solution for the bulk of the two-thirds of their book of business without mortgage insurance.”
Many economists have said that Fannie and Freddie writing down mortgages would aid the economy and Department of Housing and Urban Development Secretary Shaun Donovan has tried to push the FHFA in that direction. But DeMarco has been stridently opposing the effort. It remains to be seen whether.