U.S. Moves Closer To Mortgage Writedowns
| Date Published | 4/13/2012 |
| Author | Marja Hoek-Smit |
| Theme | |
| Country | United States |
In a speech (link)
at the Brookings Institution on April 10, 2012, Edward DeMarco, the
head of the Federal Housing Finance Agency that regulates state
controlled lenders Fannie Mae and Freddie Mac, mentioned for the first
time that it might consider a mortgage debt writedown program for
certain underwater borrowers. The FHFA had resisted debt forgiveness on
GSE loans in the past, arguing that it would increase FNMA’s and
Freddie Mac losses. The two agencies hold or guarantee approximately 50
percent of outstanding home-loans in the US. Pressure for the FHFA to
adopt debt forgiveness programs has been mounting as such programs may
stabilize house-prices and bring about a normalization of the housing
market faster than the current loan modification programs (see for
example the Federal Reserve Report on the Housing Market and IMF’s new World Economic Outlook report 1-2012 Chapter 3 “Dealing With Household Debt” - and the Global Stability Report April 2011).
Preliminary new analyses showing the potential positive effects of such
programs on the agencies’ balance sheets because of the higher
likelihood that borrowers in such programs will repay, and, importantly,
anticipated increased incentives from the US Treasury have contributed
to the change in FHFA’s position. The net cost of these programs to the
US tax-payers was estimated at just over US$2billion, excluding
offsetting benefits of positive market effects.
_________________
Direct IMF Link: http://www.imf.org/external/pubs/ft/weo/2012/01/pdf/text.pdf