Letter to Federal Housing Finance Agency Director Edward DeMarco Regarding Principal Reduction for Underwater Homeowners

Recipient: Director Edward DeMarco, Federal Housing Finance Agency

Dear Director DeMarco:

As you know, The Leadership Conference’s member organizations
represent millions of Americans nationwide, countless numbers of whom are
currently facing the prospect of losing their homes and who continue to have a
tremendous stake in any actions taken by the FHFA aimed at preventing
foreclosures.

In view of the recent developments by the administration and
the state attorneys general regarding principal reduction for underwater
homeowners in the battered housing market, we feel that it is critical to meet
with you in the coming week, rather than waiting until our currently scheduled
meeting on February 23.  These important developments demand a prompt
response by the GSEs and make our meeting more urgent. We believe that
Fannie Mae and Freddie Mac principal reduction policies must promptly be instituted
in order to significantly reduce foreclosures, stabilize the housing finance
market, and ultimately reduce taxpayer losses stemming from the takeover of the
GSEs.

As you are aware, yesterday, the federal government and 49
state attorneys general announced a settlement with major mortgage servicers
over fraudulent and abusive foreclosure practices. The settlement provides for
at least $10 billion in principal reduction in cases of homeowners who are
underwater and in danger of foreclosure. As HUD Secretary Shawn Donovan pointed
out yesterday, the need for drastically better mortgage servicing policies
“will not end with this settlement.” The only way  that this settlement will have a lasting impact, however, is
if all mortgage holders – particularly the GSEs, which currently hold more than
half of all outstanding mortgages – are working together in a coordinated
fashion.

Meanwhile, the White House has recently announced that it will
triple the current financial incentives, under the HAMP program, for mortgage
holders and servicers to offer principal reduction to underwater, struggling
homeowners. For the first time, these stronger incentives will be extended to
Fannie Mae and Freddie Mac. While we harbor no illusions about the likelihood
that this policy will have a drastic impact, given the results of the HAMP
program to date, we believe the new policy is a definite improvement and very
much worth a try.

In addition, we were surprised to learn, in a letter this week
from Reps. Elijah Cummings and John Tierney, that a former Fannie Mae employee had
informed them about a pilot program to reduce mortgage principal for troubled
underwater homeowners. We would appreciate hearing more about any findings or
results of this pilot program, why it was discontinued, and why it was not
publicly known until now.

As we have said before, we strongly believe that principal
reductions are very much in the interests of the taxpayer owners of the GSEs,
and we remain troubled by assertions you have made that it is not the FHFA’s
responsibility to provide “more general support to the housing market.” To put
it simply, given the fact that the GSEs currently hold more than half of all
outstanding mortgages, the health of the housing market and the health of the
GSEs now go hand in hand.

We believe that the above developments make our upcoming meeting
more urgent, and we hope its timing can be moved forward. Thank you very much
for your consideration. If you have any questions, please contact either of us
at (202) 466-3311.

Sincerely,

Wade Henderson
President & CEO

Nancy Zirkin
Executive Vice President