Writing Down Principal Balances Would Save Taxpayers Billions of Dollars

Writing Down Principal Balances Would Save Taxpayers Billions of Dollars

This, says Rep. Cummings, a Dem from MD and on the House Oversight Committee.

Did you know Fannie Mae had been working on a pilot program to give principal reduction to troubled homeowners in 2010?

At the last minute Fannie Mae executives let go of the program. Read the full WSJ story here.

I have always been an advocate for principal reduction for homeowners. This is not a popular view among real estate professionals because they see principal reduction as favoring those who took out mortgage loans who now can’t pay, or are so underwater they can’t sell, as getting a break. God forbid a home owner who can’t pay their mortgage get a break. I’m aware of many real estate agents and professionals who view short sales in the same way—it’s giving a break to the homeowner.

I don’t see anything wrong with giving principal reduction to the homeowner, rather than short selling to someone else. In my opinion, it would be the right thing to do. Principal reduction would be the quickest way to get the housing market back on track so folks can live in their homes and continue paying their mortgage at terms they can afford, and then sell later if they need to. Our communities would be better off with principal reductions to homeowners who want them.

If you look at the larger picture, the only other alternative is foreclosure.

Foreclosure costs lenders money. A short sale is a win-win solution for the homeowner and the lender, who would have to write down the principal in a foreclosure anyway, but can now save on mitigation and foreclosure costs. Home owners who want to stay in their home but can’t pay their mortgage at the current terms, should be allowed principal reduction. It’s the same as a short sale, or short pay.

Let's remember that Fannie Mae received 151 billion dollars of taxpayer money to keep them a float. Now it’s time for Fannie Mae to help American homeowners, through no fault of theirs, to keep them in their homes.

That’s my story. What say you?