Washington, D.C. — The Federal Housing Finance Agency yesterday released a letter detailing a principal reduction pilot formerly under consideration at the government-controlled mortgage investment firm Fannie Mae. The proposed program, which was initially approved by the firm’s regulator and later terminated before any homeowners were helped, would have lowered the amount certain borrowers owed on their mortgages in exchange for a higher likelihood of repayment. In a separate letter released yesterday, Reps. Elijah E. Cummings (D-MD) and John F. Tierney (D-MA) estimated that the proposed pilot would cost about $1.7 million and save Fannie Mae $410 million, citing internal documents provided by a former Fannie employee.
John Griffith, a Policy Analyst on the Housing team at the Center for American Progress, issued the following statement:
Yesterday’s release offers further evidence that principal forgiveness can be good business practice, a fact that’s embraced by the private sector and confirmed by the Federal Housing Finance Agency’s own analysis. To be sure, any principal reduction initiative will involve some uncertainty and operational costs. But the long-term benefits to Fannie, Freddie, and the taxpayers supporting them are far greater, and the relief will give thousands of struggling homeowners a fighting chance at staying in their homes.
The time has come for the Federal Housing Finance Agency to lift its blanket ban on principal reductions at Fannie and Freddie. This theoretical argument has been going on far too long, and American homeowners are suffering unnecessarily as a result. It’s time to test the model in the real world, starting with a targeted principal reduction pilot.
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