Corker: Government Should Not Encourage Homeowners To Default

Monday, April 9, 2012

Senator Bob Corker, a member of the Senate Banking, Housing and Urban Affairs Committee, on Monday wrote to Ed DeMarco, acting director of the Federal Housing Finance Agency, urging him to avoid encouraging irresponsible behavior on the part of American homeowners.

“The last thing the federal government should be doing is taking taxpayer money and creating a program that incentivizes homeowners to not pay their mortgages, and I thank you for your record in standing up against efforts that would do just that,” Senator Corker said to Mr. DeMarco in regard to the Treasury Department’s plan to forcibly push principal reduction loan modifications at Fannie Mae and Freddie Mac. “As policy makers, we should reward responsible behavior, not encourage reckless behavior. At no time should any program designed by the government discourage those borrowers working hard to stay current on their mortgages from doing so.” 

On Tuesday, Mr. DeMarco is expected to give a speech to the Brookings Institution outlining the challenges associated with principal reduction loan modifications.

The text of Senator Corker’s letter to Mr. DeMarco is below. 

“I am writing as you come under additional pressure to use increased Treasury incentive payments to perform principal reduction loan modifications.  The last thing the federal government should be doing is taking taxpayer money and creating a program that incentivizes homeowners to not pay their mortgages, and I thank you for your record in standing up against efforts that would do just that. 

 “Recently, however, Treasury has chosen to take money from other funds and use it to forcibly push principal reduction loan modifications at Fannie Mae and Freddie Mac.  While I view this as a poor use of taxpayer resources, and I suspect you do as well, as conservator of these enterprises I am aware that you are statutorily bound to minimize losses at the government-sponsored enterprises.  Unfortunately, you may be forced to view these funds as ‘free money’ even though the funds are coming from hard working Americans.  As a result, if you find yourself forced to embark down a road of moral hazard in order to fulfill your statutory mandate, I would encourage you to do the following.  First, use all reliable empirical data available to quantify the potential costs of incentivizing ‘strategic defaults’ as you examine the economics of principal reduction.  As a country we would be moving in a very dangerous place if we sent a message to homeowners that they would be better off not paying their bills.  Please incorporate the expected losses stemming from more homeowners choosing to walk away from their mortgages in your model, and if this tips the decision against principal reduction, then so be it.  Second, I would urge you to structure this program in such a way as to minimize this incentive.  The vast majority of your book is comprised of borrowers who, despite a challenging economy, have continued to honor their obligations.  As policy makers, we should reward responsible behavior, not encourage reckless behavior.  At no time should any program designed by the government discourage those borrowers working hard to stay current on their mortgages from doing so. 

 “Finally, let me say that while you have been put into a difficult situation by Congress and the Treasury Department, please know that I will be working hard to convince my colleagues in the Senate to finally act responsibly and to give you long-term direction for Fannie and Freddie.  It is growing more and more clear to me that as long as these GSEs exist in their current forms, the administration and Congress will use them to pursue misdirected initiatives like this.  Many in Congress have taken to making the FHFA a convenient scapegoat but have neglected to put forth a plan for the agencies you now oversee.  This is unacceptable, and I hope that it will soon change.” 

 


Chattanooga Recognizes National Fair Housing Month In April

The City of Chattanooga is recognizing Fair Housing Month through a number of activities that promote equal housing for everyone .  The Office of Multi-Cultural Affairs and the Office of Economic and Community Development are collaborating with the Greater Chattanooga Association of Realtors, Legal Aid of East Tennessee and Chattanooga Neighborhood Enterprises to encourage ... (click for more)

Chattanooga Neighborhood Enterprise Offers Refinancing On 30-Year FHA Mortgages Granted After April 18, 2011

Chattanooga Neighborhood Enterprise now offers refinancing on all 30-year Federal Housing Administration mortgage loans granted after April 18, 2011. The news comes following the White House decision in January to reduce the annual FHA mortgage insurance premiums from 1.35 percent to 0.85 percent. Borrowers are estimated to save roughly $900 annually with the new rates. ... (click for more)

Cleveland, Tn., Production Company Owner Charged With Defrauding Church Of God International Of $100,000

The head of a Cleveland, Tn., production company has been charged with defrauding the Cleveland-based Church of God International of $100,000 in connection with his part in setting up the church's world convention in Orlando, Fla., in 2010. Troy Scot Carter was charged by federal authorities with securities fraud. A four-page criminal information says the church hired Carter ... (click for more)

City Set To Commission $200,000 Mural On MLK Boulevard By Famed Muralist Meg Saligman; Foundations To Cover Cost

The city is set to commission a $200,000 mural on the side of the AT&T Building on MLK Boulevard by famed muralist Meg Saligman. Ms. Saligman has created over 50 murals all over the world, including one called  "Fertile Ground" that is 32,500 square feet in Omaha, Neb. Her most famous mural is "Common Threads" on the west wall of the Stevens Administrative Center ... (click for more)

Finley Stadium Needs To Grow Up - And Response

RE:  Finley Stadium Financial Picture Rosy; Beer And Alcohol Sales Approved; AstroTurf Almost Ready and City, County Pitching In $250,000 Each For New Finley Stadium AstroTurf I read a story here five days ago about a rosy future for Finley stadium. It lead me to believe that the stadium was making money and even improvements with donations.  Then we get a short ... (click for more)

Roy Exum: The 15-Year-Old Marine

There are 58,267 names on the Vietnam Veterans Memorial Wall that today sits majestically in the Constitution Gardens of our nation's capital. It has never been lost on me that 33,103 of those who are named were only 18 years old when they died. But what caught my eye during my morning reading is that one of the names carved in the black granite “Dan Bullock“ was only 15 years old ... (click for more)