The last holdout, Edward DeMarco, caved today on forbidding principal reductions, from HW:
Federal Housing Finance Agency Acting Director Edward DeMarco said principal reductions done under larger incentive payments from the Treasury Department would save Fannie Mae and Freddie Mac enough money to begin an umbrella write-down program.
DeMarco released preliminary findings from an FHFA analysis in a speech at the Brookings Institute Tuesday.
According to the early results of a potential pool of nearly 700,000 borrowers, Fannie and Freddie are expected to lose $63.7 billion on those loans if they are not modified. With the tripled incentive payments to reduce principal under the Home Affordable Modification Program, the losses would be $53.7 billion if some principal is forgiven, compared to $55.7 billion through forbearance.
The Treasury could potentially send $3.8 billion in incentive payments to Fannie and Freddie after redefaults are factored in. Based on net-present-value models, reducing the principal on significantly underwater mortgages would save the GSEs $1.7 billion, resulting in a $2.1 billion cost to taxpayers for the program.
“Because the Enterprises would receive the tripled incentive payments for principal forgiveness, PRA is better for the Enterprises [and] reduces Enterprise losses by $1.7 billion,” DeMarco said.
So, if Federal Housing Financy Agency Acting Director Edward DeMarco greenlights a principal reduction program for GSE loans, where does the money come from?
An editorial in The Wall Street Journal Monday left it vague, saying the Treasury Department would “take a chunk of the $20.9 billion in leftover TARP funds” to pay for the write-downs.
The specific spending plan though has actually already been approved by Congress.
The Dodd-Frank Act authorized Treasury to use $45.6 billion for foreclosure prevention under the Troubled Asset Relief Program. Of which, $29.9 billion has been set aside for the Home Affordable Modification Program and all the army of acronyms therein (HAFA, UP, 2MP, etc.) and the principal reduction program, called PRA.
In October 2010, Dodd-Frank ended all commitments under TARP, meaning the $45.6 billion and the $29.9 billion numbers are set. However, the $29.9 billion can be moved between programs.
To date, the Treasury has kept aside roughly $9 billion in incentive payments for modifications already done through the program, which pays out to servicers, investors and homeowners over five years (so long as the borrower remains current).
But the $9 billion figure does not include the homeowners yet to come through the program when it was expanded in January. That month, the Treasury eased debt-to-income requirements, pushed the program out another year to the end of 2013 and agreed to pay out more of the $29.9 billion to investors who allow principal reduction.
According to the special inspector general of TARP, the Treasury paid out $8.8 million in incentives under PRA as of December. But since then, participating servicers wrote down principal on nearly 9,000 portfolio and private-label mortgages and maintained about the same monthly average since the fall of last year.
The editorial in the WSJ posits the idea of using this money instead to reduce the national debt.
more can kicking and wasting money.
Where can I buy a great quality used printing press?
Roughly, if you used the whole chunk of 20 billion and divided that among 700,000 eligible borrowers it comes out to about $28,571 IF all the money actually went to principal reductions.
= Not much help here for San Diego.
The NY Times says foreclosure is bad and principle reduction is great. That’s all a certain % of the population reads/hears and anything else to the contrary is right wing nonsense in their mind. Also, if you don’t support a moratorium on foreclosures and principle reduction you are “mean spirited”, regardless of the data or moral hazards cited. I rather listen to someone who is pounding the pavement each day, regardless of their political persuasion.
JtR’s comment #1 really ought to be posted along with the article, rather than down here in the comments, imho. Kinda the way CalculatedRisk does it, for example.
Gotta Beat on the Outrages and Raping of the Taxpayer today:
“Congressional Black Caucus Chairman Emanuel Cleaver (D-Mo.), who is facing a lawsuit for failing to pay down a 2002 Bank of America loan that he used to buy a car wash in Missouri, could have a good chunk of the $1.5 million he owes paid off by taxpayers”
http://thehill.com/blogs/floor-action/house/220697-rep-cleaver-faces-bank-of-america-suit-but-could-be-bailed-out-by-taxpayers
Read the full story. You’ll just LOVE it.
I recieved a letter today from C about a mortgage of mine being eligable for a “short payoff refi” into an FHA loan of 98.75% of appraised value with previous balance forgiveness. They even mention I could miss 2 payments. The house value is approx. $1.8m and I owe $6,800 on it.