Updated: Aug. 28, 2012 (Initial publication: Aug. 21, 2012)

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On July 31, 2012, the Secretary of the Treasury of the United States request to the Federal Housing Finance Agency (FHFA) to reconsider its refusal to apply its program to reduce the amount of capital to reimburse in the real estate loans yet due.


We know the importance of the credit mortgage c in the United States and the place of its failure in the financial crisis of 2008 and those that erupted. The refinancing market of the real estate loans is held by three operators, including Fannie Mae and Freddie Mac. This market is regulated and overseen by the Federal Housing Agency (FHFA). This agency has the power to adjust as needed to lower the principal amount of mortgage debt if market value of purchased assets decline also. But he Federal Housing Finance Agency (FHFA) sought for this purpose by the same firms of refinancing acting at the request of the Government, refused to allow such an adjustment. On July 31, 2012, the Secretary of the Treasury of the United States is expressed "concern" of such refusal, which risk to distressed companies of refinancing of mortgages, including the rescue has already cost so much at the first time.

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In the United States, the Federal Housing Finance Agency (FHFA) has the mission to regulate the secondary mortgage market and its main three agents, including two companies of Fannie Mae and Freddie Mac mortgage refinancing. Among the regulatory tools available to the Agency, is a programme, called "reduction of the principal of the debt", which can reduce the amount of the debt of the owner when the market price of the property is less than the amount of the debt.

It’s easy to understand the system, where everything revolves around the fair value, accounting standard based on the value market, which played a major role in the onset of the financial crisis, whose origin is the North American real estate market, before igniting the planet.

Indeed, if everything is based on the net asset value of the property, that is to say the amount to which the owner can sell them on the market, then if the market decline, that must be correspondingly the amount of mortgage debt decreases.

If in 2008, the entire system had a dysfunctional, it was precisely, because the value of the assets, estimated according to their market value (downward), had no impact on the debts that the owners had contracted with a variable rate (to increase), to acquire.

Thus, they found themselves insolvent and refinancing companies into bankruptcy.

If we want that continue to coincide, except to finally abandon the market value..., the amount of the debt to acquire the property and the value of the property, that must be that if the net asset value of the property down, the regulator could intervene in special title to correspondingly reduce the amount of the mortgage debt.

Thus, it can be a forced sale of the property and the price of the sale will coincide with the debt.

The domino effect of non-outstanding debts, even though the assets are foreclosed and sold, because the property market were down, because the mortgage debts were stable or even increased, is thus stopped.

It is probably difficult to admit when we analysed the situation under contract law. But from the point of view of the regulation, the reasoning is quite admissible and let us not forget that it is a special program, which only the regulator may determine the outbreak.

At the request of the Government, two companies of refinancing mortgages, nationalized in 2008, therefore turned to their supervisory authority so that it allows the implementation of the programme of adjustment loans by reducing the amount of capital the consideration of the market value of the property acquired.

And it is precisely this problem.

Indeed, currently, the North American real estate market is down and Fannie Mae and Freddie Mac have therefore requested their supervisory authority, the Federal Housing Finance Agency (FHFA), to implement the "principal reduction" program, so that borrowers can repay their debts, or that the banks can use their guarantees, which even away the intervention of refinancing companies, and therefore their risk of financial difficulties. But Edward De Marco, president of the the Federal Housing Finance Agency (FHFA), refused to do so.

For this, he is well positioned in a global perspective of regulation and public policy, and, regardless of the binding force of contract of loan, or even moral hazard, he felt that such intervention would not significantly improve the rate of evictions.

Two immediate reactions are to observe. First of all, Tim Geithner, Treasury Secretary, expressed "concern".

What a nice-sounding word, we looks like at the Court of Versailles, while the White House must bluster....

But what can do the Executive against an independent agency, even if it is true that regulators in the United States are less independent than in Europe, the Government cannot but express its "shock" and "concern" for people who, if the the Federal Housing Finance Agency (FHFA) decline not automatically the amount of their mortgage capital and see be put in the street.

Here we find the difficult relationship between regulators and the Executive, whose missions do not necessarily match.

The Secretary of State asked to the the Federal Housing Finance Agency (FHFA) to reconsider its refusal. It cannot make more on the state of the law. Secondly, the University responded. As usually in the United States, it responded through the large daily press, that is to say the New York Times.

Indeed, Paul Krugman, in less diplomatic language, denounces the decision of the regulator, especially because it does not import the situation of unemployment in the United States. If the Government had decided the outbreak of these two companies, now public programs, this is because 500,000 people, probably affected by a loss of income and a decline in the real estate market, will be put to the street if their obligation to repay is not diminished.

The social imperative must be integrated into the objectives of regulation. We see that academic freedom can make things more directly. We see that academic freedom can make things more directly. The suite will tell if this has an effect or not on the regulator, which is not necessarily for mission to serve so many purposes but which may not come to lock up in a sort of "regulatory bubble ".

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