You may have heard talks that lenders are being pushed to help struggling homeowners by forgiving part of the principal owed on their mortgages.
Forget it. It's not going to happen. That's pretty much what Federal Housing Finance Agency Acting Director Edward DeMarco said during an interview that aired on C-SPAN this weekend.
"The idea of reducing principal or forgiving principal for borrowers who are underwater in their mortgages has been widely discussed … and has gotten a lot of attention in the last 18 months," DeMarco said. But, after studying the matter, FHFA has concluded that principal forgiveness "does not accomplish our conservator mandate."
In other words, it doesn't make financial sense for Fannie Mae and Freddie Mac to write down principal on loans. Without the agency's approval, servicers couldn't offer some sort of principal reduction program, even if they wanted to, because the bulk of these loans are owned by the two entities.
Proponents of principal reduction efforts, including attorneys general in several states, say such a measure would help to prevent foreclosures and contribute to the housing recovery.
But critics say principal write-downs would be a bailout, or a reward to borrowers who took out loans they couldn’t afford.
What's your opinion? Do you think lenders should offer loan reductions to struggling borrowers?
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