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Rep. Mel Watt will likely face an uphill to win confirmation as director of the Federal Housing Finance Agency, but nominating him has other advantages in the debate over long term mortgage policy.
May 1
WASHINGTON — Principal write-downs for mortgage borrowers eligible under a federal modification program would have a modest benefit that would be greater if the program could reach more borrowers, the Congressional Budget Office said in a report this week.
The report, released Wednesday, examined three different options for providing principal reductions — now essentially banned in loans backed by the government-sponsored enterprises Fannie Mae and Freddie Mac — and concluded that each could potentially help thousands of homeowners and save the government up to several billions of dollars. But the overall result would be small, the CBO said, when weighing the options against the current eligibility requirements for obtaining workouts through the Home Affordable Modification Program.
"Augmenting the GSEs' existing loan modification policy with principal forgiveness under current eligibility rules for HAMP would probably generate fewer than 60,000 additional modifications and avert fewer than 100,000 defaults, in CBO's estimation," the report said. "When compared with the approximately 3 million borrowers who are at least three months delinquent on their mortgages, the options' expected positive effects on the housing market nationally and on the economy as a whole would be small. Policies with broader eligibility than those CBO analyzed could have larger effects."
Liberal advocacy groups and several Democratic lawmakers have continued to push for principal write-downs for HAMP borrowers seeking to modify loans backed by Fannie or Freddie, despite the ongoing refusal of Edward DeMarco, the Federal Housing Finance Agency's acting director, to implement such loan forgiveness by the GSEs.
The CBO completed the study following a
The CBO "report demonstrates that principal reduction programs are a win-win-win for our country — helping U.S. taxpayers, American homeowners, and our nation's economy all at the same time," said Rep. Elijah Cummings of Maryland, the top Democrat on the House Oversight and Government Reform Committee. "Rather than implement these programs years ago when their benefits were obvious, ideologues ignored this evidence and harmed our nation as a result. I hope this report provides a new opportunity to anchor our nation's housing policy in facts rather than partisan politics."
The report measured expected results from offering principal forgiveness to reduce loan balances to three different levels: 115%, 110% or 90% of a home's value. The CBO said those options would "result in small savings" for taxpayers, "slightly reduce" foreclosures and delinquencies, and "slightly boost overall growth."
"Designing a program that affected a larger number of borrowers and had a greater impact on the housing market and the economy would require a significant departure from HAMP's current eligibility rules," the report said.
