Fannie and Freddie Mortgage Write Downs – Another Bailout For Big Banks

Fannie and Freddie regulator Edward DeMarco, the acting Director of FHFA, is taking a lot of heat for his reluctance to write down first mortgages for underwater homeowners. But DeMarco is rightly pointing out that the push to write down the first mortgages is merely a form of protectionism for the four largest banks in the U.S. – JP Morgan Chase, Wells Fargo, Citigroup, and Bank of America.

But aren’t mortgage write downs beneficial for homeowners who are underwater?
What’s really happening here is not an attempt to help homeowners who find themselves with too much debt on their homes. As DeMarco points out, writing down senior first mortgage balances held by taxpayer-backed Fannie Mae and Freddie Mac makes no sense, when you consider that many of these homes also have second mortgages that are held by the four banks named above. In fact, these four banks are holding almost 50% of all of the second mortgages in the U.S. housing market. This is a lot of money currently showing as assets on bank balance sheets. If the first mortgages are supposed to be senior to a second mortgage, then why aren’t they considering writing down the second mortgages first?

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