A Bailout by Another Name

[girl gone mad]

By GRETCHEN MORGENSON

ED DeMARCO is a marked man.

The acting director of the Federal Housing Finance Agency and overseer of Fannie Mae and Freddie Mac, Mr. DeMarco is a soft-spoken, career public servant — and under fire. In the thankless job of conservator for the loss-ridden mortgage finance giants, he has a duty to ensure that the companies operate in the best interests of the taxpayers who own them. That means working to keep a lid on the companies’ losses, which now total $183 billion.

But in recent weeks, Mr. DeMarco has come under increasing pressure to chuck his obligation to taxpayers and make Fannie and Freddie write down principal on mortgages held by troubled borrowers. He says, with reason, that such a program would run counter to his legal obligation to pursue only those activities that pose the least cost to taxpayers.

Representative Barney Frank, the Massachusetts Democrat who supported Fannie Mae almost to its collapse, has called for Mr. DeMarco’s resignation because he is “too rigid” on the issue. Representative Elijah E. Cummings, a Maryland Democrat and ranking member of the House Committee on Oversight and Government Reform, told a field hearing in Brooklyn last week that Mr. DeMarco “may be the biggest hurdle standing between our nation and the recovery of our housing market.”

Stabilizing the housing market is a noble and desired goal, of course. And legions of borrowers hurt by the bust genuinely need help. But what the proponents of principal reductions at Fannie and Freddie don’t talk about is what a transfer of wealth from taxpayers (again) to large banks such a program would represent. The fact is, principal reductions by Fannie and Freddie are not the panacea that they may seem.

As of last September, only 2.5 percent of Fannie and Freddie mortgages were seriously delinquent, versus 7.2 percent for banks’ mortgages.

Still, the crowd clamors for widespread Fannie and Freddie write-downs, even though they would constitute a direct and sizable gift from taxpayers to the largest banks.

http://www.nytimes.com/2012/03/25/business/a-bailout-by-another-name.html?_r=1&ref=business

[Demeter]

1. Well, Getting the Economy Unstuck Would Benefit the Taxpayers

and writing down the debt would unlock the housing market...it might unlock a lot more than that.

It might force Eric Holder and the Administration to prosecute some white collar criminals. (But don't tell them that).

Prosecuting the criminals and putting back the Depression-era Regulations would enable Mr. de Marco to do his job better, but since that isn't going to happen....

What a charade this government has become.

[mother earth]

2. When does it ever end? K & R, thanks for posting this. This is outrageous.

[snot]

3. There are simple solutions to this supposed quandary.

If the writedown is simply marking the loans to market, that has no effect on the borrowers' obligations to either the first or second lienholders, and it would be a good thing.

If the writedown means loan modifications, those could be effected by doing consensual foreclosures, wiping the second lienholders out to the extent the true value of the property's insufficient to cover the second lien, and then doing modified loans.

The second lienholders are in the weakest possible bargaining position, and there is absolutely NO reason a write-down has to mean bailing them out.