The Obama administration's offer to subsidize write-downs of mortgage-loan balances for some heavily indebted homeowners is putting the federal regulator who oversees Fannie Mae and Freddie Mac in a bind by forcing the agency to rethink its long-held opposition.
For years, the federal regulator overseeing the taxpayer-backed mortgage-finance giants has resisted calls to have the firms cut loan balances, often referred to as principal write-downs. But in recent weeks he has come under intense pressure to change course, especially now that the U.S. Treasury is offering to split the cost.
In an interview this past week, Edward DeMarco, acting director of the Federal Housing Finance Agency, said while he's still skeptical about the benefit of principal reductions, "we said all along, if money came from another source, we'd have to reconsider our position." He says his agency will make a decision by mid-April.
The offer by the Treasury Department to help pay for principal write-downs has put Mr. DeMarco in a tough spot: He's consistently argued that his mandate to reduce losses at the firms means putting the narrow interests of the firms ahead of broader housing market policy. The Treasury's subsidies could reduce those costs, but don't change his underlying doubts about whether principal reductions are good policy.
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