An internal assessment by the Federal Housing Finance Agency (FHFA) has concluded that reductions of mortgage principal would serve to benefit both homeowners and the federal government. But the head of the FHFA has resisted this move.

 

Lowering the amount of loan principal could keep hundreds of thousands of families in their homes, according to the FHFA review, and it would also save Fannie Mae and Freddie Mac money by minimizing future losses from foreclosed mortgages.

 

Edward DeMarco, acting head of FHFA, which oversees Fannie and Freddie, has refused to allow the mortgage giants to reduce the principal on home loans. DeMarco contends such a move would be bad from a business standpoint, and that it would ultimately cost, not save, the government money.

 

Economists are split over the idea. Some believe it is an ideal solution for keeping people in their homes and bolstering the weak economy. Others point out that many Americans who are paying their mortgages feel it would be unfair to let some homeowners off the hook, and that reducing principals might encourage more people to stop paying their loans in order to get a reduction as well.

-Noel Brinkerhoff

 

Fannie and Freddie: Slashing Mortgages Is Good Business (by Jesse Eisinger, ProPublica and Chris Arnold, NPR)