Lawmakers Urge Mortgage Principal Write-downs

More than 20 lawmakers in the House of Representatives this week called on Fannie Mae and Freddie Mac to reduce the mortgage principal of borrowers who owe more on their home than it is currently worth.

The Federal Housing Finance Agency, which regulates Fannie and Freddie, has been refusing to take such a drastic move, citing concerns that writing down principal balances may create a “moral hazard” and prompt other borrowers to stop making loan payments on time.

But the Democrat lawmakers argue that such action would reduce the risk of defaults for about 20 percent of Fannie and Freddie’s mortgages.

“We strongly urge that you reconsider your refusal to allow principal reductions to achieve better-performing [loan] modifications and avoid the extreme losses of unnecessary foreclosures,” the Democrat lawmakers wrote in a letter to the FHFA.

Source: “U.S. House Democrats Press for Mortgage Write-Downs,” Reuters News (Nov. 22, 2011)

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