A plan to offer principal mortgage reductions to struggling homeowners could backfire by encouraging many to stop making their payments. Here are some ways around that.
Over the next few weeks, acting Federal Housing Finance Agency director Edward DeMarco will decide whether he will allow Freddie and Fannie to reduce loan balances. DeMarco is skeptical about the idea. Even as Congress, the Federal Reserve and the Obama administration call on the mortgage companies to write down home loans they own or guarantee, DeMarco points to several reasons why that's a bad idea. His latest argument, as reported by The Financial Times: It would amount to another bailout for the big banks, whose second mortgages are subordinate to the primary mortgages backed by Fannie and Freddie.
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