Taxpayers have already put out nearly $200 billion to prop up Fannie Mae and Freddie Mac. They are on the hook for hundreds of billions more.
Key Democrats are pushing the regulator of Fannie and Freddie to write down mortgage principle. This would dramatically push up Fannie and Freddie’s losses.
The Democrats here want to take money from those who’ve made prudent decisions to subsidize imprudent decision-making. This is moral hazard.
Rep. Barney Frank and two other House Financial Services Committee Democrats on Monday pressed Edward DeMarco, the regulator of seized housing finance giants Fannie Mae and Freddie Mac, to write-down the principal on mortgages of underwater homes.
Frank, Michael Capuano and Stephen Lynch, all of Massachusetts, wrote to DeMarco, director of the Federal Housing Finance Agency, saying they supported a push last week by Massachusetts Atty. Gen. Martha Coakley for Fannie and Freddie to reduce the amount owed by struggling homeowners.
DeMarco said last month that the FHFA had concluded that extending the terms of mortgages was preferable to reducing principal because it would result in less loss to taxpayers, who now own 80% of Fannie and Freddie. So far, taxpayers have pumped about $183 billion into Fannie and Freddie to keep them afloat and to offset losses from toxic mortgage-backed securities they own.