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Treasury Notes

 Letter from Secretary Geithner to Acting FHFA Director DeMarco on the Principal Reduction Alternative (PRA) Program

By: Anthony Reyes
7/31/2012

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

 

Federal Housing Finance Agency

Office of the Director

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 programs.  

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.  

Sincerely,

Timothy F. Geithner​

Posted in:  Housing Finance Reform
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