Withstanding pressure from the Obama administration, Fannie Mae and Freddie Mac held firm to their decision not to reduce mortgage principal for underwater homeowners.
Ed DeMarco, head of the Federal Housing Finance Agency, which oversees Fannie and Freddie, contends that principal reductions would not make a meaningful improvement in staving off potential foreclosures and would instead cost taxpayers more money. The two mortgage firms were taken over and bailed out by the government in 2008. Together, they back about 60 percent of home loans.
The administration is seeking ways to reduce the $700 billion mortgage overhang debt created by the housing bust that left about a quarter of homeowners owing more on their mortgage than their home is worth. They've come up with the Home Affordable Modification Program Principal Reduction Alternative. In addition to costing the taxpayers more money, DeMarco says the program will present operational challenges and could result in up to 19,000 homeowners who are current on their monthly payments deciding to strategically default.
Treasury Secretary Timothy Geithner opposes DeMarco's decision, saying that by helping distressed homeowners, the housing market will improve, and taxpayers will see a net benefit in the end. In January, the Treasury Department offered to partially subsidize the cost of a principal write-down program using the unspent housing aid funds.
Many readers wrote in response to my last post, opposing mortgage forgiveness. Do you agree with DeMarco's decision to refuse to participate in mortgage principal reductions?
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