Fannie Mae and Freddie Mac, created by Congress to help provide financing to the mortgage markets, were seized by the federal government in 2008 during the financial crisis. Together, they own or guarantee about half of the home loans in the United States. Since 2008, taxpayers have spent $182 billion to keep the two lenders afloat.
Representatives from Fannie Mae and Freddie Mac declined to comment on Coakley’s letter, referring questions to the FHFA. Corinne Russell, a spokeswoman for the agency, said officials “received the letter and will respond soon.’’
Last month DeMarco wrote a letter to Congress explaining why the agency does not allow principal reduction as a way to help homeowners avoid foreclosure. He said the mortgage companies hold nearly 3 million mortgages that are underwater - meaning borrowers owe more than the value of their homes - and the vast majority of them are still making regular monthly payments.
Reducing debt for homeowners with underwater mortgages, DeMarco said, would be a burden to taxpayers.
Instead, he said, the agency has found that a process called forbearance - through which the lenders set aside a portion of the mortgage interest-free - also serves to reduce mortgage payments without financial losses to taxpayers.
“Fannie Mae and Freddie Mac already offer a loan modification option that reduces monthly payments to an affordable rate using principal forbearance,’’ he said.
Coakley’s letter comes as concern grows over the role of major US lenders - including Fannie Mae and Freddie Mac - in creating unfair loans and then unnecessarily foreclosing on homeowners who could have managed if granted lower rates.
Earlier this week, a report by National Public Radio and ProPublica, an independent nonprofit newsroom, said that Freddie Mac invested billions of dollars betting that homeowners wouldn’t be able to refinance their homes at historically low mortgage rates. Some have called that position a conflict of interest, a charge DeMarco has said is not true. Freddie Mac stopped carrying out the trades last year.
Coakley’s letter was applauded by local housing advocates who have long pushed for principal reduction as a way to slow foreclosures.
Melonie Griffiths, an organizer with the Jamaica Plain housing advocacy group City Life/Vida Urbana, said that even if taxpayers lose money when Fannie and Freddie reduce principal for needy homeowners, they will lose even more if the housing crisis is not resolved.
“It is one of the things that is going to get the economy back on track,’’ she said.
