Principal forgiveness could save taxpayers billions

The federal regulator that oversees mortgage activity at Fannie Mae and Freddie Mac is expected to make a decision on the implementation of a principal forgiveness program that could help millions of borrowers saddles with negative equity.

The federal regulator that oversees mortgage activity at Fannie Mae and Freddie Mac is expected to make a decision on the implementation of a principal forgiveness program that could help millions of borrowers saddles with negative equity.

There are currently more than 11 million borrowers across the country who are upside down on their loans, which accounted for roughly a quarter of all home loans. This issue has threatened the financial safety and soundness these households have about making other investments.

Meanwhile, the Federal Housing Finance Agency recently suggested that such an initiative could be greatly beneficial to not only distressed borrowers, but taxpayers as well, the Wall Street Journal reports.

Specifically, the FHFA claims a principal forgiveness program would save taxpayers as much as $3.6 billion more current loss mitigation efforts. Such a program could be particularly affordable, as the Department of the Treasury announced earlier this year it would help cover any losses than either Fannie or Freddie experience as a result.

"We think there's a set of cases where it's clearly in the interest of the taxpayer for them to do principal reduction upfront," said Treasury secretary Timothy Geithner earlier this year, according to the newspaper.



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