TAXPAYERS BAILED BANKS OUT WHEN THEY NEEDED IT, TIME TO REPAY THE FAVOR:

But what the proponents of principal reductions at Fannie and Freddie don't talk about is what a transfer of wealth from taxpayers (again) to large banks such a program would represent. The fact is, principal reductions by Fannie and Freddie are not the panacea that they may seem.

As of last September, only 2.5 percent of Fannie and Freddie mortgages were seriously delinquent, versus 7.2 percent for banks' mortgages. [...]

While some of the same people who helped get us into this housing mess call for Mr. DeMarco's head, it's instructive to see what Fannie and Freddie have done to help troubled homeowners -- and to compare, where you can, the companies' efforts with those of banks.

In the quarter ended last September, Fannie and Freddie were responsible for 36.3 percent of all loan modifications, compared with 19.2 percent by banks. Of the 54,000 loan modifications initiated under the Treasury Department's HAMP program in the September quarter, 44 percent were on Fannie and Freddie mortgages; bank-held loans accounted for a little more than half that share, at 23.6 percent.

The September quarter is by no means an anomaly. Fannie and Freddie have consistently led in loan modifications since the beginning of 2010.

Since the companies were taken over by taxpayers in September 2008, they have provided 1.1 million permanent loan modifications for homeowners. This compares with 950,000 permanent loan modifications under the HAMP program done by banks in a slightly shorter period -- April 2009 to January 2012. These include modifications on loans held by investors, however.

There's more. According to a recent report from the Office of the Comptroller of the Currency, loan modifications by Fannie and Freddie have performed far better than those on privately held mortgages. Since the taxpayers took over the companies, re-default rates have been consistently lower at Fannie and Freddie than among privately held mortgages, the report shows.

This suggests that the types of loan modifications provided by Fannie and Freddie -- reducing borrowers' monthly payments -- are working fairly well. Addressing borrowers' ability to repay loans has been the focus, Mr. DeMarco said. At the same time, these changes in loan terms do not encourage people to default in spite of being able to pay.

"What we're doing with the bulk of underwater borrowers is offering loan mods for principal forbearance, taking a good chunk of underwater principal and setting it aside at a zero rate of interest," Mr. DeMarco said in an interview. "We're getting the borrower into a mortgage they have an ability to repay."

Moreover, most of the borrowers who owe more on their Fannie and Freddie loans than their homes are worth continue to pay their mortgages. The most recent statistics from the companies show that nearly 80 percent of underwater borrowers were current as of June 30 last year. Among those borrowers defined as deeply underwater -- their loan-to-value ratios are currently above 115 percent -- 74 percent were current.

Throughout the crisis and its aftermath, banks have been very good at ensuring that others -- whether taxpayers, Fannie and Freddie, or private investors who hold loans in mortgage securities -- do more to help troubled borrowers than banks have been willing to do themselves. This refusal to share the sacrifice is a major flaw in the recent foreclosure-abuses settlement that regulators have crowed about.

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