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.” 

 


Habitat For Humanity Of Greater Chattanooga Greater Area And Thrivent Financial Partner To Improve A Family’s Life

Habitat for Humanity of Greater Chattanooga Area  has been awarded $67,000 from Thrivent Financial to support construction of a Habitat home for an area family, as part of the Thrivent Builds program. This is the eighth home in Chattanooga to be built, thanks to Thrivent’s support. Thrivent Builds with Habitat for Humanity is an ongoing multi-year, multi-million ... (click for more)

Real Estate Transfers For Jan. 22-28

NOTICE: The Hamilton County Register’s Office did not publish this data. All information in the Register’s Office is public information as set out in T.C.A. 10-7-503. For questions regarding this report, please call Chattanoogan.com at 423 266-2325. GI numbers, listed when street addresses are not available, refer to the location of transactions (book number and page number) ... (click for more)

Girl, 12, Stabs Boy, 13, Twice At Lookout Valley Middle High School

A female student stabbed a male student twice at Lookout Valley Middle High School on Thursday morning. It happened in a middle school classroom. Sheriff Jim Hammond the students are seventh graders.The girl is 12 and the boy 13. He  said the boy was taken by ambulance and went into surgery after the mid-morning stabbing.  He said the boy received a superficial ... (click for more)

Chief Fletcher Gives Maximum Punishment To Officer Who Fired At Vehicle That Backed Toward Him; Attorney Vows To Fight To Reverse Decision

Chattanooga Police Chief Fred Fletcher has given a maximum punishment to an officer who fired four shots toward a vehicle after he said the driver backed into his vehicle with him standing behind it. Chief Fletcher sustained a finding of “improper use of force – discharge of firearm.” He suspended Officer Alex Olson for 30 days without pay – the maximum suspension allowed ... (click for more)

Shelley Andrews Will Be Missed - And Response

Shelley Andrews was one of the kindest, most thoughtful and most effective laborers in our community.  Her work with the Friends of Moccasin Bend was exemplary.  She listened, she learned and she led with dignity and class. Her brave battle with ovarian cancer was a testament to her positive spirit and commitment to her work on behalf of the people of this region. ... (click for more)

Roy Exum: The Magic Bank Account

As the month of January is almost out the door, I am opening my email today to share a marvelous story that legend has it was printed on piece of paper found in Bear Bryant’s wallet when he died in 1983. While I don’t know that the famed Alabama football coach had this lesson in his wallet, chances are he might have if he’d read it. * * * THE BANK ACCOUNT & RULES Imagine ... (click for more)