U.S. senator backs loan write-downs

9:09 am | October 15, 2012

ERIKA NIEDOWSKI, AssociatedPress

PROVIDENCE, R.I. (AP) — Sen. Sheldon Whitehouse on Friday called on the head of the federal agency that oversees mortgage giants Fannie Mae and Freddie Mac to allow debt forgiveness as a way to lessen fallout from the housing crisis.

In a letter to Acting Director Edward DeMarco of the Federal Housing Finance Agency, Whitehouse said that writing down loan amounts will help both homeowners seeking to stay in their homes and the economy, which has suffered after the housing crash, particularly in Rhode Island.

Whitehouse, a Democrat, enclosed a copy of an Oct. 4 report by a special master who has been trying to mediate foreclosure disputes in Rhode Island’s federal courts. In her report, former Bank Rhode Island CEO Merrill Sherman said that principal reductions must be part of the solution.

“I hope that after reading Ms. Sherman’s report you will reconsider your opposition to principal reductions and recognize that supporting mortgage modifications makes economic sense for the homeowners and economic sense for our struggling housing recovery,” Whitehouse wrote.

Rhode Island’s senior senator, Jack Reed, has also asked the agency to reconsider its opposition to principal reduction, calling the stance “shortsighted” and “wrong.” The Obama administration has likewise pushed for DeMarco to allow the write-down of loan amounts.

Demarco has said that principal reduction isn’t in taxpayers’ best interests. He maintains that some homeowners could abuse the process and fall delinquent on purpose to take advantage of principal forgiveness.

Stefanie Johnson, a spokeswoman for the Federal Housing Finance Agency, said Friday numerous other programs that are must more cost-effective are in place to help homeowners avoid foreclosures.

Hundreds of homeowners in Rhode Island have sued, saying their mortgage foreclosure proceedings were fraudulent or flawed. U.S. District Judge John McConnell Jr. last year ordered a stay of the cases and appointed Sherman to bring the parties together to try to reach settlements.

Of the 131 settlement conferences Sherman has held to date, none has involved Fannie Mae or Freddie Mac because she “did not believe the result would be productive,” her report said. She called it “economic folly” for borrowers who are underwater, meaning they owe more on their homes than the properties are worth, to stay in their homes even with mortgages that have been modified in other ways.

Few of the cases have been settled so far.

Copyright 2012 The Associated Press.

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