Because Federal Housing and Finance Agency Acting Director Edward DeMarco does not support principal forgiveness, nine state attorneys general are urging President Barack Obama to replace him.
The effort, which includes a letter to Obama, is led by New York Attorney General Eric T. Schneiderman and Massachusetts Attorney General Martha Coakley.
“The FHFA's refusal to allow for principal write-downs that would result in more loan modifications is a direct impediment to our economic recovery and stands in the way of our efforts to provide much needed assistance to homeowners in New York and across the country,” Schneiderman said.
“Under the leadership of Acting FHFA Director Edward DeMarco, Fannie Mae and Freddie Mac remain an obstacle to progress by refusing to adopt policies that will help maximize relief for struggling homeowners,” he said.
The time has come for the president and Congress to work together to select a new, permanent leader at FHFA, Schneiderman continued in a release.
The attorneys general, which include California's Kamala D. Harris and Delaware's Beau Biden, claim principal write-downs are a central component of the national settlement and would assist in the nation's economic recovery.
The FHFA's continued position that principal forgiveness conflicts with its goal of asset preservation is “not supported by reality,” the attorneys general assert in the letter.
“The agency's current policy actually reduces the value of its holdings portfolio. It is far more profitable for any financial institution to hold a portfolio of performing $200,000 mortgages that lets families keep their homes than a portfolio of non-performing $250,000 mortgages headed toward default,” the attorneys general said in the letter.
In January, the FHFA announced it would allow some principal forgiveness for underwater borrowers who could document a valid need to relocate, to take a new job or deal with a serious illness. Qualified homeowners could apply for a deed-in-lieu transaction that would eliminate the loan's underwater balance.
In addition to New York, Massachusetts, California and Delaware, other attorneys general participating in the effort are Lisa Madigan of Illinois, Douglas F. Gansler of Maryland, Catherine Cortez Masto of Nevada, Ellen Rosenblum of Oregon and Bob Ferguson of Washington.
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