Edward DeMarco, acting director of the Federal Housing Finance Agency (FHFA), has signaled that the agency is weighing the costs of reversing its longstanding refusal to consider mortgage principal reductions.
In a speech delivered today before the Brookings Institution in Washington, D.C., DeMarco noted that while ‘Fannie Mae and Freddie Mac might apply principal forgiveness, it would have to be clear and transparent, having a basis in the conservatorship mandate.’
However, DeMarco also stressed that the FHFA was ‘still in the process of analyzing whether the [government-sponsored] enterprises will offer principal forgiveness’ following recent changes by the U.S. Department of the Treasury to the Home Affordable Modification Program (HAMP).
‘In considering whether the enterprises should adopt principal forgiveness under HAMP, FHFA must also consider the operational costs,’ said DeMarco. ‘The direct operational costs would focus primarily on technology modifications and improvements, since implementing a principal forgiveness program will impact multiple technology components in the enterprises' respective current and planned loss mitigation and loan accounting infrastructures, including major applications, supporting models, databases, and servicer interfaces. We are still evaluating the direct operational costs, but they are not trivial.
‘There would be other more indirect costs,’ DeMarco adds. ‘These include the costs for launching a new program, including the development of guidance to and training for servicers, which is critical for consistent, quick and efficient program delivery. The indirect costs also include the opportunity costs of diverting existing resources from other enterprise loss mitigation activities, or some of the goals recently announced in FHFA's strategic plan. All these cost factors would have to be carefully considered in coming to a decision to employ principal forgiveness or not.’