CHICAGO (Legal Newsline) - Illinois Attorney General Lisa Madigan called on the Federal Housing Finance Agency on Friday to immediately apply appropriate financial reductions to home loans held by Freddie Mac and Fannie Mae.
Madigan wrote a letter to Edward J. DeMarco, the acting director of the FHFA, demanding that the agency reassess its refusal to reduce mortgage debts for Freddie and Fannie borrowers who are now underwater. Madigan cited FHFA data and stressed that targeted principal reductions can avoid unneeded harm to communities and homeowners and help the housing market to recover. The FHFA oversees Freddie and Fannie.
"Principal reductions for borrowers can prevent the likelihood of defaulting and in turn, prevent unnecessary foreclosures," Madigan said. "This is a critical step to repair the widespread destruction caused by the housing market's crash that has reverberated in communities across Illinois."
Madigan noted media reports on Friday that cited a new internal analysis conducted at FHFA that reportedly shows the benefits of employing principal mortgage reductions. Madigan stressed the immediate need for the agency to address the reports and to start taking steps to implement debt reductions immediately.
Some of the largest banks in the country have started offering debt forgiveness, so-called principal reductions, to home loans for borrowers who owe more on their homes than the homes are worth. The principal reductions have been part of an effort to stabilize the housing market. Madigan said that FHFA's refusal to follow suit raises specific concerns since Freddie and Fannie hold a major share of all nationwide home mortgages.
Madigan battled hard to include principal reductions during negotiations that led up to February's $25 billion settlement reached by her office, federal officials and her counterparts with the nation's five largest mortgage servicers - Citibank, Wells Fargo, JPMorgan Chase, Bank of America and Ally Bank, formerly GMAC.
The settlement addressed the widespread allegations of robo-signing of documents related to foreclosure and other fraudulent practices in the servicing of loans and struggling homeowners. The settlement was the largest ever obtained through the joint action of the federal government and state attorneys general. The agreement is estimated to provide over $1 billion in relief for Illinois borrowers.