Banks have paid nearly $130 billion in the wake of the financial crisis — but that might not be any help for underwater homeowners.
The Federal Housing Finance Authority, the government agency that oversees mortgage agencies Fannie Mae and Freddie Mac, is dragging its feet on helping the most-troubled homeowners reduce principal payments on their mortgages, say housing activists.
The inaction by the FHFA, led by Mel Watt, limits the kind of help the government can offer homeowners — even though lenders like JPMorgan Chase, Citigroup and Bank of America have agreed to about $14.5 billion in consumer relief in three of the biggest settlements, said Kevin Whelan, national campaign director of the Home Defenders League.
“If the loan is ensured or owned by Fannie or Freddie, which most loans are, you cannot do principal reduction on it,” Whelan told The Post.
Whelan said he’s been let down by the FHFA since the Senate approved Watt, Pres. Obama’s pick for the agency, at the start of the year.
Instead of principal reduction, the FHFA supports the more bank-friendly principal forbearance — where paying off part of the equity is deferred, instead of written off.
Under forbearance, homeowners still owe the deferred amount. Under principal forgiveness, part of the mortgage is wiped away.
Housing advocates are irate because the FHFA, under previous leadership, rejected a proposal from the Treasury Department that would have jump-started mortgage forgiveness.
The FHFA is currently testing out a program in Detroit where it would, in partnership with nonprofit companies, reduce principal on homes in some of the hardest-hit areas, according to a May speech Watt gave at the Brookings Institute.
“FHFA expects to use the experiences in Detroit to expand this initiative to other parts of the country,” he said at the time. “We believe this will be a win-win for hardest-hit communities and for our conservatorship objectives.”
But that process has not been moving quickly enough, Whelan said.
“They’ll let it play out [while] another 10 million families [are] losing their homes,” he said.
The FHFA’s Web site still features speeches by former director Edward J. DeMarco, arguing against debt relief.
DeMarco, who left the agency last year, rejected the proposal from Treasury to cover 63 percent of debt relief — a position that led to calls for his ouster at the time.
“As is outlined in FHFA’s 2014 Strategic Plan for the Conservatorships of Fannie Mae and Freddie Mac, FHFA is always in the process of reviewing loss mitigation options to help families stay in their homes and to meet our conservatorship obligations,” said Stefanie Johnson, a FHFA spokeswoman.
So far this year, Watt has loosened some rules for distressed homeowners with delinquent payments, allowing them to stay in their homes.
And on Aug. 29, the agency announced that it plans on increasing the number of refinanced mortgages in low-income areas through 2017.