Although the Federal Housing Finance Agency (FHFA) has been steadfastly refusing to consider principal write-downs, 20 congressmen and –women in the House of Representatives are trying to pressure Fannie Mae and Freddie Mac into doing it anyway. The lawmakers, all of whom are democrats, wrote an open letter to the FHFA intended to “strongly urge that you reconsider your refusal to allow principal reductions.” The legislators argued that allowing write-downs would “achieve better performing [loan] modifications and avoid the extreme losses of unnecessary foreclosures”[1].
The members of the group estimated that allowing principal write-downs would reduce the risk of default for about a fifth of the GSEs’ portfolio[2]. The FHFA has voiced concerns that the benefits of write-downs would not outweigh the “moral hazard” that the move would create as more homeowners deliberately acted in such a way as to become eligible for the write-downs. Critics of the move have also argued that write-downs reward mortgage delinquency while punishing homeowners who have continued to make payments on underwater homes.
Do you think that Fannie and Freddie should be doing principal write-downs? If so, how can they be handled fairly?
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[1] http://realtormag.realtor.org/daily-news/2011/11/23/lawmakers-urge-mortgage-principal-write-downs
[2] http://www.reuters.com/article/2011/11/22/usa-housing-debt-idUSN1E7AL1L920111122
Mortgage delinquency and principal reductions should be handled on case by case bases, according individual situation of a borrower. Hard left or hard right could never be a fully positive move and acceptable on the both sides of the isle. Therefore, there is simply no other way of approaching the matter and I do not understand how come that decision makers haven’t see that so far?!!