Obama Gets Big 'No' On Slashing Mortgage Debt
By Phil LeBeau, CNBC Correspondent
NEW YORK (CNBC) -- Despite strong pressure from the Obama administration, a federal regulator will not allow Fannie Mae and Freddie Mac to reduce mortgage principal. The Federal Housing Finance Agency's Ed DeMarco has previously opposed the program, which uses taxpayer money to pay lenders to reduce loan balances of severely troubled borrowers, but had not made the final decision until now.
"After much study, I have concluded that Fannie Mae and Freddie Mac's adoption of HAMP PRA [the government's Home Affordable Modification Program Principal Reduction Alternative] would not make a meaningful improvement in reducing foreclosures in a cost effective way for taxpayers," DeMarco wrote in a letter to the chairman and ranking member of the Senate Committee on banking, Housing and Urban Affairs.
DeMarco concludes that the program presents the risk of more losses to taxpayers, not to mention operational challenges to the GSE's. He cites moral hazard, suggesting that as many as 19,000 borrowers who are current on their mortgages could strategically default in order to qualify for debt forgiveness. Even more significant, he goes on, could be long-term consequences for mortgage credit availability.
More from CNBC
Where Are the Move-Up Home Buyers?
For Retailers, Where's the Olympic Gold?
Hey, Boss -- Time to Ditch the Corner Office
Select the service that is right for you!COMPARE ALL SERVICES
- $2.5+ million portfolio
- Large-cap and dividend focus
- Intraday trade alerts from Cramer
- Weekly roundups
Access the tool that DOMINATES the Russell 2000 and the S&P 500.
- Buy, hold, or sell recommendations for over 4,300 stocks
- Unlimited research reports on your favorite stocks
- A custom stock screener
- Upgrade/downgrade alerts
- Diversified model portfolio of dividend stocks
- Alerts when market news affect the portfolio
- Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
- Real Money + Doug Kass Plus 15 more Wall Street Pros
- Intraday commentary & news
- Ultra-actionable trading ideas
- 100+ monthly options trading ideas
- Actionable options commentary & news
- Real-time trading community
- Options TV