Bailout

Can Treasury justify suing homeowners in default?

By Felix Salmon

House Democrats John Conyers and Marcy Kaptur have put together a strong and compelling letter asking Tim Geithner and FHFA director Edward Demarco to put an end to the silly and counterproductive way in which Frannie have decided to start suing homeowners they consider to be strategic defaulters: “pursuing expensive litigation against a vulnerable population when there appears to be little to no economic incentive is questionable at best,” they write.

The letter also points out that a lot of the onus here will be on servicers to decide who counts as a strategic defaulter — and no one, inside or outside government, trusts the servicers.

Other questions also seem to be open, for instance the proportion of received monies which will end up with Treasury as opposed to mortgage investors; the degree and way in which homeowners will be engaged prior to being sued; and the criteria which Frannie and the FHFA used when they decided to implement the policy.

I look forward to reading the replies from Geithner and Demarco: although the letter is mainly asking for action rather than a written response, a formal letter in reply would surely shed some useful light on what exactly is going on with this idea, and how committed the administration is to following it through.

Full post as published by Macroprudential on August 13, 2010 (boomark / email).