FHFA Takes A Baby Step

Even though she managed to lose the governor’s race in heavily-Democratic Massachusetts to a Republican (thereby earning the disdain of Democratic strategist David Axelrod), and even though a federal district court last month dismissed her lawsuit against the FHFA and its wards, Fannie Mae and Freddie Mac, on the basis that the court system doesn’t have the right to “second guess” the FHFA’s business judgement (isn’t that a novel concept!), Massachusetts AG Martha Coakley still had the gall to issue a public statement about the FHFA’s recent decision to back off its policy of refusing to consent to the write-down of loan principal where a foreclosed house is sold back to the defaulting owners.

“The reversal by FHFA of Fannie and Freddie’s policies, which we have long advocated for and brought suit over in part, alters some of their rigid policies to help keep people in their homes,” she said in a statement Tuesday.

To help keep people in their homes who didn’t pay their loans as they agreed to pay them and who are getting a better deal than they originally bargained for, at the expense of Uncle Freddie and Aunt Fannie, both of which have been de facto nationalized. I guess that would be a Progressive’s orgasmic night dream were it not for the fact that Coakley had absolutely nothing to do with the policy reversal and, more telling, the “reversal” will not help that many homeowners remain in their homes.

However, the impact of the change could be limited. It will only apply to the 121,000 homes that Fannie and Freddie have already foreclosed on and own, a provision that’s intended to curtail any incentive for borrowers in good standing to default. That narrow scope is unlikely to quiet the drumbeat for the FHFA to make bigger changes intended to help a larger number of borrowers who owe more than their homes are worth.

Foreclosed-upon borrowers will also still need to find the cash or financing to buy the old home back at market value, a tall order for those with tarnished credit histories.

“This is a ‘feel-good’ type of policy. It’s directionally helpful to a small number of homeowners that ran into trouble, but at the end of the day, I don’t look to this to have a major policy impact,” said Clifford Rossi, a finance professor at the University of Maryland.


The new policy in effect reduces mortgage principal, albeit for a small number of foreclosed-upon borrowers. Some nonprofit groups said that Fannie and Freddie would be better served to reduce the borrower’s principal before a foreclosure.

Fannie and Freddie wouldn’t be “better served” by such a policy, although delinquent borrowers, Nanny-State lovers, and the fake Native American politicians they so love to lionize would definitely be “better served.”

Speaking of which, the fact that 1/32 Cherokee Princess Fauxcahontas went all “jihad” on Mel Watt last week obviously had more to do with this latest publicity stunt than any dismissed lawsuit by a pol who couldn’t beat Abu bakr al-Baghdadi in a race for Prime Minister of Israel. You could see the flop sweat flying off of Watt’s brow at that Senate hearing like angel dust in the aftermath of a Lindsey Lohan sneezing fit. It’s not pretty when a cougar eats her young.

The FHFA’s position has long been that it does not want to engage in any process which encourages borrowers to default in order to gain what are, in effect, write downs of underwater mortgages. This is, in theory, especially important in light of the fact that Fannie and Freddie are in conservatorship and, ultimately, it’s the American taxpayer on the hook (leaving aside the fact that both entities have become cash cows pouring their profits into the US Treasury). This is only a baby step toward fulfilling the call for widespread write-downs for political ideological humanitarian reasons, but then, every long journey begins with the first step, no matter how tiny. Between now and 2017, it would not be at all surprising to see the pace quicken and the stride lengthen.

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