Today, Secretary Geithner sent the following letter to Acting Federal Housing Finance Agency Director Ed DeMarco on the Principal Reduction Alternative (PRA) program. Read the full letter here: letter.to.demarco.pdf
July 31, 2012
Office of the
400 7th Street S.W.
Washington, D.C. 20024
Dear Acting Director DeMarco,
I am writing in response to the decisions announced in your
letter to Congress today. While I was
encouraged that the Federal Housing Finance Agency (FHFA) is making progress on
some initiatives we have discussed that will help the housing market recover, I
am concerned by your continued opposition to allowing Fannie Mae and Freddie
Mac (GSEs) to use targeted principal reduction in their loan modification
FHFA is an independent federal agency, and I recognize that,
as its Acting Director, you have the sole legal authority to make this
decision. However, I do not believe it
is the best decision for the country, because, as we have discussed many times,
the use of targeted principal reduction by the GSEs would provide much needed
help to a significant number of troubled homeowners, help repair the nation’s housing
market, and result in a net benefit to taxpayers.
Indeed, notwithstanding the selective numbers cited in your
letter, FHFA’s own analysis, which you have shared with us previously, has
shown that permitting the GSEs to participate in the Principal Reduction
Alternative program (HAMP-PRA) could help up to half a million homeowners and result
in savings to the GSEs of $3.6 billion compared to standard GSE loan
modifications. Furthermore, if the GSEs were to participate in HAMP-PRA,
taxpayers would save as much as $1 billion on a net basis. In view of the clear benefits that the use of principal
reduction by the GSEs would have for homeowners, the housing market, and
taxpayers, I urge you to reconsider this decision.
I have asked Michael Stegman of my staff to restate in
writing for you the case for principal reduction, consistent with FHFA’s
mandates as conservator and regulator of the GSEs, that the Treasury has made to
you and your staff over the last several months. His memorandum is enclosed. Treasury stands ready to provide any
additional analytical support to make a targeted principal reduction program at
the GSEs successful.
We welcome the positive steps you announced today regarding further
refinancing opportunities, providing clarity to lenders on legal exposures,
aligning short sale practices, and putting foreclosed properties back on the
market. All of these have the potential
to help advance recovery of the housing market.
As we have previously discussed, the impact of these steps will depend
on the speed with which you act and the extent of the changes you make.
Five years into the housing crisis, millions of homeowners
are still struggling to stay in their homes, and the legacy of the crisis
continues to weigh on the market. You
have the power to help more struggling homeowners and heal the remaining damage
from the housing crisis. I hope you will
move to address these problems with a sense of urgency and force commensurate
with the scale of the remaining challenges.
Timothy F. Geithner