U.S. Rep. Bill Pascrell, Jr. (D-NJ) called upon Freddie Mac and Fannie Mae to develop a method for writing down the principals on mortgages they own that are "underwater," or valued at a dollar amount that is greater than the value of the home for which the mortgage was written. More than 15 percent of Freddie Mac and Fannie Mae's mortgages are underwater, and there is currently $700 billion in negative equity weighing down our nation's economy.
"When a foreclosure happens, it affects more than the people who lose their home. Their neighbors get saddled with higher taxes and decreasing property values while the foreclosed-upon home stays empty. That is why it is so imperative that Fannie Mae and Freddie Mac find a way to refinance and write down the principals on the more than 15 percent of mortgages they own that are underwater," said Rep. Pascrell, a member of the Committee on Ways and Means and House Budget Committee. "This action would have an immediate and substantially positive effect on the housing market and overall economy. While home values have fallen in places throughout the United States, depreciation rates in Passaic and Bergen counties have far outpaced the rest of the country."
Yearly home values have decreased 8 percent in Bergen County and 8.4 percent in Passaic County, according to the Standard and Poor's Case-Shiller Index.
During a House Budget Committee hearing on Thursday, Feb. 16, Rep. Pascrell discussed with U.S. Treasury Secretary Timothy Geithner the need remove the obstacles to writing down and refinancing underwater mortgages owned by the government.
"The Secretary and I are in agreement that we simply cannot wait any longer to act," Pascrell said. "That is why I call on Federal Housing Finance Agency Acting Director DeMarco to restart negotiations in order to find a pathway forward towards principal reduction and refinancing."
On Feb. 9, the 49 states attorneys general released their $25 billion agreement with the five largest mortgage lenders, as a result of negotiations concerning foreclosure fraud.
As a result, New Jersey homeowners will receive $762 million in direct relief with most of it going towards principal reduction.
However, the overall agreement's $17 billion for principal reduction, is minimal compared to the $700 billion in negative equity for homeowners in the country. In August 2010, the New York Federal Reserve released a study that found that a principal write-down of a mortgage with 18 percent negative equity would cut the probability of re-default 40 percent within a year of the modification.