Reports suggest FHFA killed cramdowns without cause

A recent letter from Congress to the Acting Director of the Federal Housing Finance Agency (FHFA) indicates the FHFA withheld information regarding their analysis of principal reductions (cramdowns) for negative-equity homeowners. FHFA internal documents provided to Congress by an unidentified independent source show initial analysis of cramdowns in 2009 predicted they would be very effective in stabilizing the real estate market and saving taxpayer money, contrary to more recent FHFA arguments against cramdowns.

The documents revealed that from November 2009 to November 2010, the FHFA identified cramdowns as a highly effective measure to increase stability in the real estate market and mitigate loss for Fannie MaeA government-sponsored entity operating in the secondary mortgage market., Freddie Mac, affiliated lenders, homeowners and taxpayers. Internal reports conducted during this time indicated cramdownThe reduction of the principal balance of a loan. In first tuesday context, cramdowns are a tool used to provide debt relief for underwater homeowners. programs would cost only $1.7 million to implement, while saving taxpayers $410 million. A former Fannie Mae employee further suggested these beginner programs could have led to larger programs, saving “tens of billions of dollars.”

As a result of these reports, the FHFA developed and implemented multiple cramdown pilot programs, in partnership with lenders including Citibank and Wells Fargo.