California Attorney General Kamala Harris recently subpoenaed Fannie Mae and Freddie Mac for information on their foreclosure proceedings in her state. While it is too early to say what will come from the subpoena, Harris’s attention to the role of Fannie and Freddie in stemming our foreclosure crisis is a breath of fresh air. Fannie, Freddie, and their regulator — the Federal Housing Finance Agency (FHFA), led by Acting Director Ed DeMarco — have refused to implement widely accepted servicing best practices, such as stopping foreclosure proceedings until it can be determined whether a family is eligible for a modification or reducing principal balances. In fact, Fannie and Freddie actually fine banks that do not foreclose on homeowners quickly enough.
DeMarco’s disregard for home-saving solutions has serious ramifications. Fannie and Freddie own the majority of loans processed by the largest servicers. For example, they are investors in 60 percent of the loans serviced by Bank of America and in two-thirds of the loans serviced by Wells Fargo. Since Fannie and Freddie own the loans, they dictate the terms on which servicers collect payments, offer modification, and start foreclosures. There is no question that the big banks can and should be doing more to save homes and pay for wrongful foreclosures; however, the FHFA’s firm stance against principal reduction and Fannie and Freddie’s demands for speedier foreclosures are working against the secure housing market Americans want. As Congressman Elijah Cummings (D-Maryland) recently pointed out, their policies may have actually contributed to the enduring robo-signing scandal. It is no wonder why the Occupy movement in many places has become a family’s best hope for saving their homes.
The conservatorship of Fannie and Freddie is untenable. Nevertheless, the situation is unlikely to change until the market stabilizes. Since servicers are under contract to implement the rules set by Fannie and Freddie, FHFA could do much more to leverage the two companies as positive forces in the housing market. Attorney General Harris gets it right: “If Mr. DeMarco is unwilling to support principal reduction for these home loans in crisis, he should step aside for someone who will.” DeMarco should be enforcing sound servicing practices and supporting every proven solution that saves homes and stabilizes neighborhoods. Harris’s investigation is a move toward greater transparency and accountability — something our country desperately needs to revive our housing market.
Photo by Patricia Montes Gregory