Expansion of the HARP Program likely, while debt forgiveness – not likely

As for debt forgiveness:

The FHFA, Federal Housing Finance Agency, has concluded after months of study, that while debt forgiveness could benefit nearly a half a million homeowners, the costs outweigh the potential benefits (to taxpayers). “The choices we’ve had to make are hard but they need to be made,” said the FHFA’s acting director, Edward J. DeMarco.  Both the Treasury Department, and the Obama administration have pushed for debt reduction as part of the broad set of solutions for homeowners; but the Treasury Department acknowledges that Mr. DeMarco has the “sole legal authority”.  Many economists along with the administration argue that lower levels of debt would likely support economic growth to the benefit of the economy and taxpayers as a whole.

Expanding the HARP Program in the future:

Comments by the FHFA make it appear likely that there will be a further expansion of the HARP program in the future.  This program was originally introduced in 2009, and further expanded in 2012.   Mr. DeMarco did announce a few changes sought by the Obama administration. For one, that Fannie and Freddie would offer lower-cost refinancings to a broader universe of borrowers.   And that the agency will seek to encourage new lending by addressing concerns that lenders will be forced to absorb the cost of defaults on loans purchased by Fannie and Freddie.  This should make it easier for lenders to participate.  Federal Reserve officials have said that such a change is a crucial step to increase the benefits of lower interest rates for borrowers.

Since 2010, the Obama administration has offered incentives to private mortgage companies to offer principal reduction to some troubled borrowers. And since early 2012, the administration announced that it would increase the amount of incentives, in part, to induce Fannie and Freddie’s participation. One dominant concern that has guided Mr. DeMarco is that offering debt forgiveness would encourage borrowers to default in hopes of a better deal. There is little indication that the broad availability of debt forgiveness to borrowers whose loans are owned by private companies has caused such a problem, but Mr. DeMarco said the risks would be greater for Fannie and Freddie because, he argued, such a program would be more comprehensive and better publicized.

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