Fannie Mae conducted small tests to forgive debts of homeowners who owed more on their mortgages than the properties were worth in 2010. But the mortgage-finance company didn’t expand the pilot programs after concluding the programs were difficult to operate and the benefits weren’t clear, according to a letter from the firms’ federal regulator.
The letter, released Tuesday, disclosed that Fannie developed pilot loan write-down programs with Citigroup Inc. and Wells Fargo & Co. in 2009 and 2010 but they either didn’t launch or barely got off the ground.
Fannie’s loan-forgiveness pilot programs, “to the extent they were begun, ended due to complex operational issues involving system changes, accounting considerations and the interest level of Fannie Mae’s partners,” Alfred Pollard, the Federal Housing Finance Agency’s general counsel, wrote in a letter to Reps. Elijah Cummings (D., Md.) and John Tierney (D., Mass.).
The letter, written in April, was released as the regulator considers whether to accept new funds made available by the Treasury Department to allow some troubled homeowners to receive principal forgiveness.
Messrs. Cummings and Tierney have for months accused the FHFA’s acting director, Edward DeMarco, of obstructing efforts to forgive debts of under-water borrowers. They have been probing Fannie’s pilot programs since earlier this year, when a former Fannie employee called attention to the issue.
They suggested in their own letter Tuesday that the FHFA shelved the Citi pilot for ideological reasons. “This was not merely a missed opportunity, but a conscious choice that appears to have been based on ideology rather than Fannie Mae’s own data and analyses,” the lawmakers wrote.
Mr. DeMarco quickly took issue with the lawmakers’ assertions.
“Having just received a copy of your letter regarding principal forgiveness, I wish to convey my disappointment with this letter, the failure to contact FHFA to address your concerns, and the release of selective elements of the proprietary and confidential materials you received,” he wrote. “I strongly disagree with any characterization of FHFA’s work or motives as anything but in keeping with the professionalism expected of this agency.”
The housing regulator has been under pressure from Congressional Democrats and the Obama administration to reconsider its opposition to loan-write-down programs.
Wells Fargo’s program got further along, with several hundred borrowers receiving write-downs. But it had data-entry problems, as Fannie Mae’s software system doesn’t allow for principal write-downs, Mr. Pollard’s letter said. In addition, some 200 borrowers who received write-downs performed no better than those who didn’t.
Citi’s pilot program, which was never launched, included a “shared equity” component that would have allowed Fannie and Citi to share in future home-price gains for homeowners who received principal forgiveness. Fannie officials determined in mid-2010 that it wouldn’t be able to launch the program until spring 2011 due to operational concerns, according to company emails obtained by the lawmakers.
A Citi spokeswoman said the bank “joined with Fannie Mae to develop a shared equity pilot program to help keep people in their homes. The pilot was still in the development phase when Citi was told by Fannie that it did not have the resources to implement the program.”
Wells Fargo declined to comment, as did Fannie Mae.
May 1, 2012