Fannie Mae and Freddie Mac own more than half of the mortgages in the United States. This has lead many people to push for these two government controlled entities to offer principal write downs like the banks that were part of the National Mortgage Settlement.
Ed DeMarco, the acting director of the Federal Housing Finance Agency and overseer of Fannie Mae and Freddie Mac, has resisted principal write downs as not in the best interest of taxpayers. Members of Congress disagree.
Representative Barney Frank, the Massachusetts Democrat who supported Fannie Mae almost to its collapse, has called for Mr. DeMarco’s resignation because he is “too rigid” on the issue. Representative Elijah E. Cummings, a Maryland Democrat and ranking member of the House Committee on Oversight and Government Reform, told a field hearing in Brooklyn last week that Mr. DeMarco “may be the biggest hurdle standing between our nation and the recovery of our housing market.”
The title of the article refers to the following explanation of how the requested principal reductions by Fannie and Freddie would constitute and bailout for private banks. Many banks hold second liens on the same properties for which Fannie and Freddie either own the first mortgage or have guaranteed. If principal amounts on these first mortgages are reduced while leaving the second liens intact, those seconds become much more likely to be paid off over time. With no principal reduction, the banks would have to write off many of those second liens.