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FHFA Considering Limited Principal Reduction

Thursday, February 5, 2015

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 (GSEs).



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