As industry experts and legislators continue to draw lines in the sand regarding the implementation of mortgage principal reductions, a group of attorneys general in favor of a program recently wrote to the Federal Housing Finance Agency calling for swift action.
The letter, spearheaded by Massachusetts Attorney General Martha Coakley, was addressed to FHFA acting director Edward DeMarco, and claimed that the financial well-being of both Fannie Mae and Freddie Mac would not be affected by a principal reduction program.
"Financial stability of Fannie Mae and Freddie Mac will not be harmed if they engage in principal forgiveness and according to new data could save close to$1.7 billion," the letter said.
Opposition to such an initiative claim that it could result in a wave of strategic default so borrowers with mortgages backed by Fannie and Freddie will be able to capitalize on a principal reduction. Mortgage records indicate that roughly 75 percent of these underwater homeowners are current on their home loan payments despite being saddled with negative equity. However, a number of industry experts say this fear is overstated.