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Letter to Timothy F. Geithner, Secretary of the United States Department of the Treasury


Location: Washington, DC

United States Senator David Vitter (R-La.) today sent a letter urging U.S. Treasury Secretary Timothy Geithner to end the Supplemental Directive on the Making Home Affordable Program and return that taxpayer money to the Treasury. An estimated $41 billion is sitting unused for the program, which could be returned. U.S. Sen. Jim DeMint (R-S.C.) joined Vitter's letter.

"My message is pretty simple -- end the program and pay what's left to our national debt. It's clear the Treasury's housing programs set up through TARP will significantly benefit mega banks at the expense of the taxpayer, and that's just unacceptable" Vitter said. "It is time to recognize that Treasury's housing programs aren't working without further bailouts of banks, so the commonsense thing to do is end them."

The text of Vitter's letter to Secretary Geithner is below.

April 17, 2012

The Honorable Timothy F. Geithner
U.S. Department of the Treasury
1500 Pennsylvania Avenue, N.W.
Washington, D.C. 20220

Dear Mr. Secretary:

We are writing you out of grave concern over your new Supplemental Directive on the Making Home Affordable Program which will increase the amount of taxpayer funded incentives to mega banks in order to increase the number of homes which receive a bailout in the form of a principal reduction. Your plan has been universally described as the biggest bailout of the mega banks since the original TARP plan. It will pay off the mega banks with taxpayer cash in exchange for reducing the principal balance on some mortgages. And, in the process of giving even more bailout money to banks, your new principal reduction incentive scheme, were it to be implemented, invites even greater moral hazard. We write to urge you, on behalf of the taxpayers, to reconsider and, instead, return this money to the Treasury to pay down the national debt. Pay the taxpayer back.

According to a staff editorial at Economic Policies for the 21st Century, "the main beneficiaries of the program would be the holders of the second liens -- home equity loans and lines of credit -- that should be reduced in value to zero before the senior note holder loses a cent." Gretchen Morgenson agreed with that assessment, writing on March 24 in the New York Times that, "what the proponents of principal reductions at Fannie and Freddie don't talk about is what a transfer of wealth from taxpayers (again) to the large banks such a program would represent… principal write-downs are another backdoor bailout for the banks that brought you the mortgage crisis."

Federal Housing Finance Agency Acting Director Edward DeMarco, in a recent speech on mortgage modifications and your recent tripling of incentives for principal reductions, stated that your new scheme "…would show a positive benefit to the Enterprises [Fannie and Freddie] of $1.7 billion and Treasury incentive payments of $3.8 billion, which would imply a net cost to the taxpayer overall of $2.1 billion." It defies logic for Treasury to pay $3.8 billion of taxpayer resources to financial institutions in order for Fannie and Freddie to obtain a $1.7 billion benefit.

It is critically important to know precisely who the beneficiaries will be of any taxpayer handout. The Financial Times reported that, "nearly half of all second mortgages are on the books of America's four biggest banks by assets: JP Morgan Chase, Bank of America, Wells Fargo and Citigroup." There can be no doubt that your modifications to the HAMP program represent a backdoor bailout to the mega banks who are already too big to fail.

According to the March 26, 2012 Daily TARP Report posted on the Treasury Department website, you have obligated $45.6 billion for Housing Programs under TARP, yet only $3.9 billion has gone out the door. You are holding on to roughly $41 billion which could be returned today to Treasury's general fund. Last year there was an attempt by Congress to rescind this money and return it to the taxpayer. At that time, it seemed reasonable that taxpayers would get this money back. In fact, CBO estimated that a bill to rescind $29 billion that you had obligated to the HAMP program would only save taxpayers $1.4 billion over the 2011-2021 period because, based on the performance of the program, you would not spend very much of the money. However, your new Supplemental Guidance dramatically increases the incentives for banks to participate in the program and will likely lead to a much higher price tag for the taxpayer.

It is clear that your Supplemental Directive is once again making changes to TARP housing programs that will significantly benefit mega banks at the expense of the taxpayer. It is time to recognize that Treasury's housing programs have not significantly worked, and cannot work without further bailouts of banks. We urge you to discontinue MHA and HAMP and rescind your Supplemental Directive.

The Office of the Comptroller (OCC) Mortgage Metrics report shows that the Administration's loan modification programs are increasingly aggressive in reducing principal and interest payments for borrowers. Yet, one year after the modification, 23.1 percent of those borrowers are re-defaulting on their mortgages and are 60 or more days delinquent. While most of the data are available from 2010, data from 2011 suggests little to no change in the redefault rates. These numbers suggest that these TARP funded loan programs are a failure.

We believe it is important for taxpayers to be able to examine these programs more thoroughly so that they can understand exactly where you have spent their money. In the interest of transparency, we request that you please provide to us, no later than April 27th of this year, with the following information:

* the financial analysis that led your Department to arrive at the new incentives of $0.18 to $0.63 per dollar of principal that is reduced, depending on the degree of change in the loan-to-value ratio, that you have offered to Fannie Mae and Freddie Mac;
* All financial analysis that you have provided to Fannie Mae and Freddie Mac and the GSEs' regulator, the Federal Housing Finance Agency (FHFA);
* The financial analysis you used to determine the number of borrowers you expect this newly modified program to help;
* A financial rationale for having chosen to triple incentives for principal write downs to encourage the FHFA to somehow change assessments that principal write downs are in many instances a net cost to taxpayers;
* A financial analysis of the expected cost to taxpayers, which includes a consolidation of the expected costs of Treasury's TARP housing programs along with expected costs to assets that FHFA is charged with conserving to protect taxpayers from losses;
* A financial analysis of expected financial benefits to second lien holders on mortgages whose principal would be reduced, along with identification of what lenders or financial institutions are the largest such holders.
* Data on re-default rates for modified loans 30 or more days delinquent, similar to data provided in the most recent OCC Mortgage metrics report which show redefault rates for modified loans 60 or more days delinquent (Table 25 on page 34). Please include the most current loan data available.


David Vitter
United States Senator

Jim DeMint
United States Senator

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