Insistent that principal reductions are the best line of defense in loss mitigation, California Attorney General Kamala Harris is calling on Fannie Mae and Freddie Mac to halt foreclosures in her state while the Federal Housing Finance Agency (FHFA) considers whether principal reductions are an appropriate strategy for the GSEs.
In a recent letter to FHFA Acting Director Edward DeMarco, Harris requested a “good-faith pause on foreclosure sales in California” while the FHFA continues to investigate the pros and cons of principal reductions.
California has been particularly hard hit by the housing crisis. About a half million homes in California have been foreclosed, and another half million are either in foreclosure or on the brink of foreclosure, according to Harris.
While the recent national settlement secured $12 billion for principal reductions and short sales, this will not help the 60 percent of California homeowners whose mortgages are owned by Fannie Mae or Freddie Mac.
DeMarco has expressed hesitation toward principal reductions and consistently insisted that he does not have the power to demand the GSEs employ the strategy.
However, he did recently share FHFA’s analysis of the method, which did not determine that “principal reduction never serves the long-term interest of the taxpayer when compared to foreclosure.” DeMarco maintained that forbearance ensures better returns for investors.
Harris urges DeMarco to pursue further analysis and in the meantime to suspend foreclosures in California so GSE borrowers “will have an opportunity to reduce the principal on their homes should your analysis find – as I believe it must – that principal reductions by those enterprises are in the best interest of homeowners and taxpayers,” according to her letter.