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Calif. AG wants Freddie, Fannie to halt foreclosures – U

Attorneys General Kamala D. Harris of California, left, and Catherine Cortez Masto of Nevada walk past foreclosure charts of their states after they announce a joint investigation alliance to assist homeowners who have been harmed by misconduct and fraud in the mortgage industry, during a news conference in Los Angeles Tuesday, Dec. 6, 2011. (AP Photo/Damian Dovarganes)
Kamala Harris – AP Photo.

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Download: Harris to DeMarco

California Attorney General Kamala Harris has asked the regulator of mortgage giants Fannie Mae and Freddie Mac to stop foreclosure sales in the state until it reviews whether principal reductions could help homeowners with Fannie- and Freddie-backed mortgages.

Harris made the request to Federal Housing Finance Agency Director Edward DeMarco in a Feb. 24 letter, roughly two weeks after Harris announced her involvement in a historic mortgage settlement between 49 attorneys general and the nation’s largest lenders.

The settlement, which still needs judge approval, could help an estimated 466,000 borrowers in California. However, loans backed by Fannie Mae and Freddie Mac would not be affected by the attorney generals’ mortgage deal.

“You have consistently declined to authorize principal reduction programs by those government-sponsored enterprises,” said Harris in the letter to DeMarco.

Harris’ office estimates more than 60 percent of home loans in the state are owned or held by Fannie and Freddie, a significant portion of borrowers who could benefit from having their principal balances reduced.

The Federal Housing Finance Agency could not immediately be reached for comment.

DeMarco, during an oversight committee hearing hearing on Nov. 16, said the FHFA has concluded that reducing principal balances is “not going to be the least-cost approach for the taxpayer” when compared to other alternative-foreclosure programs including principal forbearance, which “zeroes out the interest rate charged on the underwater portion of the mortgage.”

Fannie Mae and Freddie Mac are government-sponsored enterprises whose connection with subprime mortgages caused their downfall and eventually led to government takeover. They buy mortgages from lenders and sell them to investors on the secondary mortgage market.

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