U.S. Treasury Secretary Timothy Geithner has publicly faulted Edward DeMarco, acting director of the Federal Housing Finance Agency (FHFA), for his decision not to allow the government-sponsored enterprises (GSEs) to pursue principal reductions.
In an open letter to DeMarco, Geithner acknowledged the FHFA is an independent federal agency with ‘sole legal authority to make this decision.’ However, Geithner questioned whether DeMarco had paid attention to his agency's data before making his decision.
‘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,’ Geithner wrote. ‘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.’
Geithner added that the Treasury Department ‘stands ready to provide any additional analytical support to make a targeted principal reduction program at the GSEs successful,’ and he suggested that DeMarco's decision would create an obstacle to the recovery of the housing market.
‘You have the power to help more struggling homeowners and heal the remaining damage from the housing crisis,’ he wrote. ‘I hope you will move to address these problems with a sense of urgency and force commensurate with the scale of the remaining challenges.’