Democrats seek to subpoena FHFA for documents

Reuters News
Posted: Jan 18, 2012 11:33 AM
Democrats seek to subpoena FHFA for documents

By Margaret Chadbourn and Aruna Viswanatha

(Reuters) - Democratic members of a congressional oversight panel turned up the heat on the regulator of big mortgage finance companies Fannie Mae and Freddie Mac on Wednesday, seeking to force it to turn over documents it has so far resisted providing.

Two Democrats from the House Oversight and Government Reform Committee sent a letter to the panel's chairman, Representative Darrell Issa, a California Republican, asking him to compel the regulator, the Federal Housing Finance Agency, to explain why it has refused to cut certain mortgage debt for struggling borrowers.

The committee's ranking member, Representative Elijah Cummings of Maryland, and Representative John Tierney of Massachusetts, asked Issa to issue a subpoena to FHFA ordering it to produce "all documents associated with its analyses" of whether the entities should offer to reduce principal loan balances for borrowers who owe more than their homes are worth.

The letter comes as Democrats have stepped up efforts to force FHFA to reduce negative equity for those borrowers.

Last week, more than two dozen House Democrats called for President Barack Obama to unseat the acting director of the regulator, Edward DeMarco, saying he failed to take aggressive steps to address the nation's housing crisis.

DeMarco has declined to cut principal balances, arguing it would cost the tax-payer-funded agencies more than other options would.

At a congressional hearing in November, DeMarco said his staff had determined that "principal reduction within the context of a loan modification is not going to be the least-cost approach for the taxpayer."

DeMarco had promised to provide lawmakers with information about the analyses.

Democrats asked for that information by December 9, but DeMarco has since "failed to provide even a single document" and has not indicated when he plans to comply, the letter said.

Representatives of FHFA and the House panel did not immediately respond to requests for a comment.

Both government-sponsored enterprises, Fannie Mae and Freddie Mac, combined with the Federal Housing Administration support about 90 percent of all mortgages.

Mortgage principal reduction remains a controversial option, viewed by some as a reward for risky behavior and one that could encourage strategic defaults. But top officials have also viewed it as one of the most effective options to fuel a housing recovery.

As the Obama administration moves toward helping more borrowers refinance, talks of principal forgiveness have re-emerged, seen by some as an effective tool in slowing the pace of foreclosures.

Federal Reserve Chairman Ben Bernanke in a white paper to Congress issued on January 4, said the option "had the potential to decrease the probability of default" and "improve migration between labor markets."

In a December hearing before lawmakers, New York Fed President William Dudley also called for a targeted principal reduction program.

Separate talks between top U.S. banks and federal and state officials aimed at resolving allegations of mortgage abuses are expected to inject around $20 billion in principal reduction into the U.S. housing market.

(Reporting By Aruna Viswanatha and Margaret Chadbourn; Editing by Maureen Bavdek)