News exploded recently of Fannie Mae and Freddie Mac seemingly reversing course on their opposition to principal write-downs. After months of emphatic “no’s,” the mortgage giants may finally be considering them.

But why the change? Because incentives from the Treasury Department would triple the incentive payments to mortgage investors who allow principal write-downs. Previously the payouts ranged between six and 21 cents to the investors for each dollar forgiven under HAMP, but that will balloon to between 18 and 63 cents.

"I have to say recently the Treasury sweetened the program and tremendously increased the incentive payments in their offer to us," Freddie Mac CEO Charles "Ed" Haldeman said at HousingWire's REThink Symposium. "We will reevaluate that to see what may be in our economic best interest. If there are very large incentive payments — which could be 50% of what you could write down — it may be in our economic self-interest to participate in that."

This blog previously evaluated the pros and cons of the GSEs doing principal write-downs, and then the immediate call for Federal Housing Finance Agency Acting Director Edward DeMarco’s head when he opposed them. 

But the offer from the Treasury Department changes things. If it is going to reimburse Fannie and Freddie up to 50% of the write-down, the mortgage giants don’t hold near the amount of risk, and it’s a smarter business decision than it used to be. 

DeMarco has yet to fully comment since reporting about potential GSE write-downs  by NPR and ProPublica, but he issued the following statement:

“As I have stated previously, FHFA is considering HAMP incentives for principal reduction, and we have been having discussions with (Freddie and Fannie) and Treasury regarding our analysis.”

While the offer to triple incentive payments was made back in January, the GSEs' analysis of their effectiveness was only performed recently. As recently as Feb. 28, DeMarco told the Senate Banking Committee that Fannie and Freddie execs had did “not believe it is in the best interest of the companies to do so.” 

It is unclear how DeMarco will respond, nor is it clear how this will eventually play out. 

On Friday, top Democratic members of the House Committee on Oversight and Government Reform called on DeMarco to provide Congress with the new analysis.

“We are encouraged by reports that Mr. DeMarco may be reconsidering his opposition, but we remain concerned that he has failed to provide us all of the analyses related to his decision to prohibit principal reduction programs at Fannie and Freddie,” Rep. Elijah E. Cummings, ranking member of the House committee, said in the statement.

Until the analyses are released, we won’t know exactly how effective the principal write-downs will be by Fannie and Freddie’s standards, nor will we have a better idea where DeMarco will stand. As of Friday, he’d given no indication that the analyses in any way changed his mind.   

All of this comes after Treasury Secretary Timothy Geitner told Cummings that he and DeMarco were working on sorting out their differences over principal reduction. Whether or not these analyses were part of that equation is unclear.
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