A decision on cutting the balances of borrowers’ home loans is coming within the next month, the regulator of Fannie Mae and Freddie Mac said Tuesday.
“I expect to announce a decision within the next 30 days about whether we have been able to find a ‘win-win’ principal reduction strategy or whether, on the other hand, we will take principal reduction off the table entirely,” Mel Watt, director of the Federal Housing Finance Agency, said at an event in Washington Tuesday.
Whether the agency, as the government caretaker of the bailed-out mortgage giants, will allow reductions in the principal of home loans has long been a controversy. Liberals have pushed the agency to allow such principal reductions and subjected Watt’s predecessor Ed DeMarco to harsh criticism for blocking them.
Pressure to act to lower borrowers’ debt has subsided as the economy has recovered and the number of homeowners underwater on their mortgages has declined.
Nevertheless, Watt suggested that the agency has not simply shelved the question. Instead, he suggested, the agency has taken a long time to study the issue because it must consider an “extremely complicated set of factors.” Those include determining whether the benefits of lowering the debts of homeowners would be worth the costs of the significant complexity involved in reducing principal.
Watt said to “stay tuned” for his decision. On Monday, however, The Wall Street Journal reported that the agency is planning to approve a small-scale plan that would be targeted to fewer than 50,000 borrowers with low balances.
Coming to a conclusion has not been easy, Watt said in the remarks prepared for the speech. “It would not be an overstatement to say that this has been the most challenging evaluation the agency has undertaken during my time as director,” the text read.
