Sunday, February 19, 2012

Moral Hazard to the taxpayer--NOT

Excerpt from an article by Ben Hallman @ Huffington Post:

Top law enforcement officials in several states are signaling they will pressure Fannie Mae and Freddie Mac to correct what is widely seen as one of the biggest deficiencies of the $25 billion mortgage settlement announced on Thursday: It simply doesn't help that many homeowners.

Borrowers whose loans are backed by the government-controlled mortgage giants -- nearly half of all outstanding mortgages in the United States -- are not eligible for payouts under the deal. State officials who negotiated the deal say they could not convince Fannie Mae and Freddie Mac, or the Federal Housing Finance Agency, which oversees the loan giants, to join onto the settlement because they are steadfastly opposed to principal reductions -- loan write-downs for borrowers whose homes are at risk of foreclosure.
"This is a glaring weakness of the overall settlement," said one state official who spoke on condition of anonymity.

 "Fannie and Freddie were absolutely opposed to principal reduction. You'd ask why, and they'd say 'moral hazard to the taxpayer.'"

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