Response to Takeover of Fannie Mae and Freddie Mac

Recipient: James B. Lockhart III, Director Federal Housing Finance Agency (FHFA)

September 15, 2008

James B. Lockhart III, Director
Federal Housing Finance Agency (FHFA)
1700 G Street, NW
4th Floor
Washington, DC 20552

Dear Mr. Lockhart:

We write to request a meeting with you to discuss the future role of the Government Sponsored
Enterprises (GSEs) in the housing market under conservatorship. The recent decision to place
Freddie Mac and Fannie Mae in conservatorship raises several questions about the role these
entities will continue to play in providing affordable homeownership to low- and moderateincome
families and the role they can play in preventing foreclosures and allowing families to
stay in their homes. Specifically, we urge you to consider adopting the following policies:

• Defer foreclosures and modify loans in the GSEs portfolios. The GSEs should freeze
  foreclosures for a substantial period of time on all whole loans in their portfolios to allow
  for modification. Additionally, the GSEs should aggressively remove troubled loans
  from their securitized pools, without waiting for the loan to become delinquent, and place
  them in their porlfolios so they can be subsequently modified. All troubled loans in
  porlfolio should be modified according to a reasonable affordability standard, similar to
  what the Federal Deposit Insurance Corporation (FDIC) has done with lndyMac’s
  portfolio. The FFIFA, along with Treasury and Congress, should design a modification
  process to avoid any negative tax consequences for homeowners. Principal reductions,
  which the GSEs have refused to do, interest rate reductions, and term extensions must all
  be used to create affordability. In the past, the GSEs have refused to pull loans from their
  securitized loans or modif’ delinquent loans aggressively. With the U.S. government
  now backing the GSEs, any barriers to changing these policies should be removed. To do
  otherwise, would continue to undermine housing markets, create needless stress and
  disruption to beleaguered homeowners, and increase the number of foreclosed homes
  across the country. Secretary Paulson was recently quoted as saying that the regulators
  would work with financial institutions that own considerable GSE prefened stock to
  restore their capital positions. The same should be done for American homeowners.
  
  
• Retain focus on affordable homeownership. Although the government has taken over
  Freddie Mac and Fannie Mae, it is vital that Congress and the Conservator not lose sight
  of the GSEs’fundamental purpose, as chartered by Congress, to expand homeownership
  opportunities and promote access to credit to under-served markets. Unfoftunately, the
  GSEs have had difficulty meeting their affordable housing goals and more importantly,
  they purchased predatory subprime loans made to vulnerable communities and applied
  these imprudent purchases to these goals. Among other things, the GSEs need to
  continue key paftnerships with nonprofit organizations that innovate ways to extend
  mortgage credit to historically underseryed communities as well as groups that conduct
  outreach to out-of-contact borrowers who are delinquent on their mortgage. lnnovative
  pilot programs are needed now more than ever.
  
  
• Ensure funding for the National Housing Trust Fund (NHTF) and the Capital
  Magnet Fund (CMF). These new affordable housing funds, created in the housing
  legislation enacted in July, provide a dedicated funding source for the production,
  preservation, rehabilitation, or operation of rental housing targeted to assist low-income
  households. Specifically, the legislation creates a funding mechanism dependent on
  annual contributions from the GSEs. The decision to place the GSEs in consenratorship
  jeopardizes this funding and the future of the NHTF and CMF, which are critical to
  providing affordable housing to people employed in the low wage work force and to the
  lowest income elderly and disabled people in our country. Therefore, it is critical that an
  alternative funding mechanism be created should the GSEs be unable to meet their
  financial obligations to these two new affordable housing funds.

As our leaders work to stabilize the housing market, speed economic recovery, and open the
benefits of homeownership to working families, the public missions of Freddie and Fannie must
be kept front and center. As Chairman Frank noted in his statement regarding Treasury’s action
to place the GSEs in conservatorship, such an intervention should ensure the continued
availability of affordable housing in addition to stability in the financial markets. Furtnermore,
the ability of homeowners to assert any legal defense to foreclosure must not be compromised as
a result of the GSEs being placed in consenratorship, We look forward to discussing the
aforementioned issues as well as the future role of the GSEs. Please contact Deidre Swesnik,
National Fair Housing Alliance, to schedule a meeting at202.898.1661 x 131 or via email:
[email protected].

Sincerely,

ACORN
CDFI Coalition
Center for Responsible Lending (CRL)
Consumer Action
Consumer Federation of America (CFA)
Consumers Union
Demos: A Network for Ideas & Action
Lawyers’ Committee for Civil Rights Under Law
Leadership Conference on Civil Rights (LCCR)
Mexican American LegalDefense & Educational Fund (MALDEF)
National Association of Consumer Advocates (NACA)
National Consumer Law Center (on behalf of its low-income clients)
National Council of La Raza (NCLR)
National Fair Housing Alliance (NFFIA)
National NeighborWorks Association
National Policy and Advocacy Council on Homelessness (NPACH)
National Urban League (NUL)
Opportunity Finance Network
Rainbow Push Coalition