Edward J. DeMarco, the head of the Federal Housing Finance Agency (FHFA), has announced that Fannie Mae and Freddie Mac will not offer principal reductions as an option to prevent foreclosures on the loans they guarantee. Stating that their research found that only 248,000 homeowners might benefit from debt reductions, DeMarco argued that the benefits would not be enough to justify the cost, and that there is a risk that by offering principal reductions, some homeowners might elect to stop making their mortgage payments so they can benefit from such a program. In his statement, DeMarco said that principal reductions "would not make a meaningful improvement in reducing foreclosures in a cost-effective way for taxpayers." This statement supports his previous position in April, 2012, when DeMarco voiced his opinion that the costs of a principal reduction program would not justify the benefits and could actually encourage mortgage defaults.
U.S. Treasury Secretary Timothy Geithner does not accept DeMarco's position, stating he would once again attempt to persuade the FHFA to participate in debt reductions, although his previous two attempts to do so failed. Urging the FHFA to reconsider their decision, Geithner offered technical assistance from the Treasury Department if the FHFA would allow Fannie and Freddie to participate in a principal reduction program under HAMP, the government's Home Affordable Modification Program. In addition to that assistance, the Treasury Department had stated it would offer incentives to Fannie and Freddie from Troubled Asset Relief Program funds. Under HAMP, Fannie and Freddie would receive an incentive of 63 cents for each dollar of mortgage principal debt it forgives. Consumers should be aware that this announcement only applies to loans guaranteed by Fannie Mae and Freddie Mac.
An official statement from the FHFA indicates that DeMarco has provided Congress with a preview of other assistance Fannie Mae and Freddie Mac will for borrowers, including new policies for lenders, enhancements to their refinancing options, and simplification of their short sale programs.
Anna Cuevas, ex-bank executive turned homeowner advocate known as "America's Loan Modification Guru," has empowered and guided thousands of Americans in keeping their homes from foreclosure through loan modification self-advocacy. A popular blogger (askaloanmodguru.com), Cuevas has been called a "superhero of the loan modification industry" and has been nominated for CNN's Heroes. She is the #1 bestselling author of SAVE YOUR HOME Without Losing Your Mind or Money.