WASHINGTON — The independent federal agency that administers Fannie Mae and Freddie Mac said once again on Tuesday that it would not let the mortgage finance companies offer debt forgiveness to homeowners, rejecting the entreaties of Congressional Democrats and the Obama administration.
The Federal Housing Finance Agency said it had concluded after months of study that debt forgiveness might benefit up to half a million homeowners, but that the costs — including the cost to taxpayers — outweighed the potential benefits.
Offering debt forgiveness “would not make a meaningful improvement in reducing foreclosures in a cost-effective way for taxpayers,” the agency’s acting director, Edward J. DeMarco, said in a statement.
The decision is a direct rebuff to the Obama administration, which has pressed Mr. DeMarco for more than a year to reconsider his longstanding opposition. It is also a blow to the administration’s efforts to increase help for homeowners.
The decision also is likely to infuriate Congressional Democrats, who have pressed for a debt forgiveness program. Republicans have supported Mr. DeMarco’s refusals.
Mr. DeMarco did announce Tuesday two other changes sought by the Obama administration. He said that Fannie and Freddie would offer lower-cost refinancings to a broader universe of borrowers. The agency also will seek to encourage new lending by addressing concerns that lenders will be forced to absorb the cost of defaults on loans purchased by Fannie and Freddie. Federal Reserve officials have said that such a change is a crucial step to increase the benefits of lower interest rates for borrowers.
Changed his mind again
The Obama administration initially shared Mr. DeMarco’s opposition to principal reduction, arguing as he does now that the government should focus on other, less costly means of helping homeowners.
Free Obama Money
But since 2010, the government has offered incentives to private mortgage companies to offer principal reduction to some troubled borrowers.
In January, the administration said that it would sharply increase the amount of those incentives, partly to induce the participation of Fannie and Freddie.
The housing agency is charged by Congress with minimizing the cost of bailing out the two companies, which were seized in 2008. The administration said it would cover the cost of debt forgiveness from a separate pot of money, the $700 billion that Congress allocated in 2008 to bail out the financial system. Administration officials argued that this would allow the housing agency to meet its statutory responsibility.
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