Transcript: Hearing Q&A with Rep. Michael Capuano (D-Mass.) & FHFA Director Edward DeMarco on government conservatorship of Fannie Mae & Freddie Mac

Edited by Jenny Jiang

Partial transcript of Q&A with Rep. Michael Capuano (D-Mass.) and Edward DeMarco, Acting Director of the Federal Housing Finance Agency, on the FHFA’s conservatorship of Fannie Mae and Freddie Mac. The House Committee on Financial Services Hearing was held on March 19, 2013:

Rep. Michael Capuano (D-Mass.):
…”What you said earlier – I accept that you feel the pain of the people who are kind of caught in this vortex, and for me, the people that I’ve felt the most difficult for lately – for a while now – are the people that are struggling to meet their mortgages. And, regardless of principal write-down, I’ve re-mortgaged my house a hundred times and it’s all about cash flow. It’s nothing else other than can I afford it, how much do I save, how much do I have to cost each month. Cash flow is the most important thing – any homeowner, or at least the average homeowner anyway.

And the cash flow can be affected in lots of different ways – principal write-down is one way and it’s a good way by some standards and that’s fine. The other way is to extend the term or reduce the rates.

The problem with a lot of these people is they cannot take current benefits of reduced rates like I just did by re[-financing] my mortgage because they’re underwater, because they might have missed a couple of payments. Again, I want to distinguish that group of people from people who haven’t paid anything for the last 10 years; it’s a different group.

But there’s an awful lot of people who are struggling, that can – maybe if their mortgage was $200, $300, $400 less per month, they can make it. And has there been any consideration to coming up with a 40-year mortgage or a 50-year mortgage if you don’t want to write down the principal and allowing these people, temporarily as a one-time thing, to get into these lower rates so they can get their home ownership back, their life back, their control of their life back and so you can get off the hot seat for not doing enough for people we’re concerned with? So have you given any consideration to other alternatives?

Edward DeMarco:
Absolutely, Congressman and I appreciate an opportunity to provide that information to you.

You know, when we looked at the HAMP [Home Affordable Modification Program] principal forgiveness, that was an approach within HAMP but it’s still focused on getting a borrower to a monthly payment of 31% of the household’s monthly income. The loan modifications we are doing at least get the borrower to 31% because HAMP is the first thing we’re doing. Fannie and Freddie have done more HAMP re-fis [re-financing] than anybody. So to your point, we are lowering the interest rate, we are extending the term to 40-years, we are forbearing on principal – we’re taking the underwater portion of principal and setting it aside and charging a 0% rate of interest on it. And all these things we’re doing to do exactly what you just laid out, which is to enable the household cash flow to be able to support the mortgage.

We’ve gone beyond HAMP. Fannie and Freddie have developed modification tools that will result in an even lower monthly payment than HAMP would for many of our borrowers. The Treasury Department liked it so much that they adopted it themselves over a year ago with what they call HAMP 2. It is now part of their program but they saw how it was working for us. But it does the very things that you said, Congressman, about trying to get the borrower’s monthly payment down. If they want to stay in that house, we want to give them every opportunity to do that.

One other thing is with respect to refinances, we’ve touched lightly on the HARP [Home Affordable Refinance Program] during the hearing and that is enabling underwater borrowers to be able to refinance their mortgage but I can only do that for mortgages Fannie Mae and Freddie Mac already own. And we’ve seen great success with this program.

…And there’s one thing in my written statement that hasn’t come up at this hearing but I would like to make sure that members are aware of it. We’re very pleased with the success of the HARP program and we’re getting prepared to undertake a marketing campaign to further reach out, to let borrowers know this is a legitimate program and this program really can help you because we want to see – as much success as we’ve had with it – we want to see more borrowers refinance to take advantage of it.
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