FHFA Considering Limited Principal Reduction

Even though his predecessor as head of the Federal Housing
Finance Agency (FHFA) was adamant in his refusal to consider it, Melvin L. Watt
seems receptive to allowing Freddie Mac and Fannie Mae some leeway to reduce the
principal balance of their troubled loans.

According to Bloomberg News, Watt told reporters that he is
studying a way to provide principal reduction to a narrow group of homeowners
who are underwater on their mortgages without increasing costs for U.S.
taxpayers.  Principal reduction has been
a principle tool used by other lenders when modifying mortgages but is not
allowed on those in the portfolio of the two government sponsored enterprises



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