Housing agencies clash over mortgage-relief program
Friday, December 10, 2010; 1:07 AM
The top federal agencies responsible for setting housing policy are clashing over a new program designed to help borrowers whose homes are worth less than they owe on their mortgages, according to industry and government sources.
The Federal Housing Administration says the program could avert foreclosures, but the Federal Housing Finance Agency has concerns that the program, if expanded to include the government-controlled mortgage giants Fannie Mae and Freddie Mac, could be a logistical nightmare that would cost taxpayers too much, the sources said.
About one in four borrowers is underwater. Without equity in their homes, these borrowers tend to be vulnerable to foreclosure because it is difficult for them to refinance or sell their homes. Housing advocates have said that helping these borrowers is important to stem the nation's foreclosure tide.
At issue is an FHA program launched in September that would allow some underwater borrowers who are current on their mortgages to refinance into more-affordable loans with a smaller loan balance and lower interest rate.
The agency, which answers to President Obama, says the program is an intelligent approach to avoid foreclosures among borrowers whose homes have substantially declined in value.
But without the participation of Fannie Mae and Freddie Mac, which control more than half of the mortgage market, analysts say the FHA's program is likely to have little impact on the depressed housing market.
In an interview, FHA Commissioner David H. Stevens said that any major mortgage company that refused to consider taking part in the FHA program would be "short-sighted" and that he would be "concerned if Fannie and Freddie are resisting it."
But the other regulator, the FHFA, which oversees Fannie Mae and Freddie Mac, has so far resisted the program because it could cost the companies, increasing their losses.
This second agency, which is independent of the Obama administration, is charged with minimizing losses at the companies. Taxpayers, through the Treasury Department, are on the line for covering these losses. The companies have already cost taxpayers more than $130 billion.
Analyses by Fannie Mae and Freddie Mac have raised concerns about the losses they might incur as part of the program, and the companies questioned whether it would help enough people to justify the administrative costs, an administration official said.
The FHFA declined to comment. A Treasury official said the department would like the FHFA to allow Fannie Mae and Freddie Mac to participate in the program but cannot force the hand of that agency.
The clash between the two federal agencies reflects a continuing debate over how far Fannie Mae and Freddie Mac should go to help the housing market - and at what expense. The effort to enroll the companies in the FHA program was first reported by the Wall Street Journal.