What a shocker. From National Mortgage News:
Fannie Mae and Citibank officials were developing a principal reduction pilot program that was supposed to go live in July 2010 when it was “mysteriously” stopped and later terminated, according to congressional investigators.
A Fannie employee told the investigators the pilot was terminated by officials who were “philosophically opposed to writing down principal balances.”. . .
Internal Fannie documents obtained by Cummings and Tierney show Fannie officials concluded the GSE “might reduce its losses in many cases by writing down principal.”
Internal memos state: the “business case for shared equity is strong.”
The memos also note that “underwater borrowers will perform better on a modification that re-establishes equity” and default rates will be “far below” other modifications.
At deadline FHFA had no comment on the matter.
HuffPo has an article on FHFA head Ed DeMarco’s take on the abolishment of the program, and the charges that his “morality” has cost taxpayers billions:
But according to the Democrats, Fannie Mae data crunchers seem to have thought differently from DeMarco, who took over after President George W. Bush’s appointee left the position. He has led the FHFA since, and remains there because the Senate has blocked President Obama’s nominee for the job, Joseph Smith.“These documents reveal how Fannie Mae officials worked with Citibank beginning in 2009 to develop a ‘shared equity’ principal reduction pilot program that ultimately was terminated for unspecified reasons,” the lawmakers wrote. “The documents show that Fannie Mae officials strongly supported the concept of principal reduction and fully evaluated its risks and benefits as they obtained the necessary internal approvals to finalize the program.”
According to the documents that Tierney and Cummings cite, the Citibank program would have cost less than $1.7 million to implement but could have saved Fannie $410 million. Yet the program was canceled at the “11th hour” for no clear reason.
“Despite the clear conclusion reached by Fannie Mae officials that principal reduction would reduce losses to the taxpayer, this pilot program was prevented from ever getting off the ground,” the lawmakers wrote. “It remains unclear why you failed to mention this in your testimony and why you failed to disclose this principal reduction program to the Committee.”
“This was not merely a missed opportunity, but a conscious choice that appears to have been based on ideology rather than Fannie Mae’s own data and analyses,” they argued. “The documents make clear that Fannie Mae officials concluded as far back as 2009 that principal reduction programs had enormous potential to save the U.S. taxpayers significant sums of money, even when compared to other types of modifications, such as forbearance.”