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Fannie, Freddie principle reductions would cost taxpayers another $100B

The FHFA stands firm

The Federal Housing Finance Agency (FHFA), the conservator of Fannie Mae and Freddie Mac told lawmakers in a letter today that forcing the two to write down the principle on underwater home loans would require more than $100 billion in new taxpayer funds.

With one in five homes in America underwater, negative equity now totals over $750 billion, which the FHFA says would be more costly than forbearance.

FHFA has been called by lawmakers to answer the problem of underwater borrowers with principle reductions being the most common answer pushed by politicians these days, with various leaders, criticizing the FHFA for not taking action. The regulator wrote today that the decision has not been made in light of Fannie and Freddie already having borrowed $169 billion from taxpayers.

FHFA director, Edward DeMarco wrties, “FHFA has a statutory responsibility as conservator to preserve and conserve the assets and property of the regulated entities.”

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DeMarco added, “Given that any money spent on this endeavor would ultimately come from taxpayers and given that our analysis does not indicate a preservation of assets for Fannie Mae and Freddie Mac substantial enough to offset costs, an expenditure of this nature at this time would, in my judgment, require congressional action.”

DeMarco also pointed out that additional costs of a principle reduction program is the need to borrow even more money to train servicers for the program and pay for the required technology to run the program, reiterating that forbearance is a less expensive option.

As lawmakers, regulators, banks and consumers scratch and claw their way toward an answer to solving the housing crisis, heads will continue to butt.

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Tara Steele is the News Director at The American Genius, covering entrepreneur, real estate, technology news and everything in between. If you'd like to reach Tara with a question, comment, press release or hot news tip, simply click the link below.

15 Comments

15 Comments

  1. Arn

    January 24, 2012 at 1:36 pm

    Everybody in America seems to want something from the federal government as long as it benefits them and does not cost them anything. The problem with all these wonderful government programs is someone else – the nameless taxpayers – foots the bill or we just add the amount onto the national debt. No problem as long as one gets something, who cares how it is paid. Extend the payroll tax extension FABULOUS but let's ignore the fact that the money to pay for this will be paid by every home borrower moving forward. It is fantasyland.

  2. broker

    February 22, 2012 at 8:04 am

    When referring to debt, the word is spelled "principal," not "principle."

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