Rep. Barney Frank and two other House Financial Services Committee Democrats on Monday pressed Edward DeMarco, the regulator of seized housing finance giants Fannie Mae and Freddie Mac, to write-down the principal on mortgages of underwater homes.
Frank, Michael Capuano and Stephen Lynch, all of Massachusetts, wrote to DeMarco, director of the Federal Housing Finance Agency, saying they supported a push last week by Massachusetts Atty. Gen. Martha Coakley for Fannie and Freddie to reduce the amount owed by struggling homeowners.
DeMarco said last month that the FHFA had concluded that extending the terms of mortgages was preferable to reducing principal because it would result in less loss to taxpayers, who now own 80% of Fannie and Freddie. So far, taxpayers have pumped about $183 billion into Fannie and Freddie to keep them afloat and to offset losses from toxic mortgage-backed securities they own.
Many lawmakers and housing advocates have criticized DeMarco for the agency's opposition to principal write-downs, which they said is the best way to help underwater homeowners and stabilize the housing market. Coakley wrote to DeMarco last week saying she had a great concern about the unwillingness of Fannie and Freddie to use principal write-downs.
She said the ongoing talks between state attorneys general, the Obama administration and leading mortgage servicers are expected to produce a settlement forcing billions of dollars in principal write-downs. California Atty. Gen. Kamala D. Harris has rejoined the talks with a Monday deadline for states to sign on to a proposed settlement
The three House Democrats added their voices to Coakley's criticism.
"As Atty. Gen. Coakley correctly points out, the refusal of an important government agency, under your direction, to join in the effort to alleviate the great distress caused by the current mortgage situation in America 'is so troubling,'" the House Democrats wrote to DeMarco.
"Suffering is being inflicted on a number of individuals, many of whom are in these difficulties through no fault of their own; on the cities in which properties are located; and most importantly, on the entire American economy, which is in the midst of recovery but which will not enjoy a full recovery until all concerned -- yourself included -- help with the housing problem."
The lawmakers said they helped write the 2008 law that allowed the federal government to seize Fannie and Freddie as they teetered near bankruptcy that year.
Frank was chairman of the Financial Services Committee at the time, and along with Capuano and Lynch told DeMarco in Monday's letter that "we disagree flatly with the notion there is anything in that statute -- or any other federal law -- that requires you to withhold your cooperation from this effort to the extent that you have."