Principal Reduction is Still a Good Idea

May 9th, 2014 at 9:42 am

I’ve been downright remiss in not continuing to hammer this point, as was my wont months back.  Thankfully, this nice oped in this AM’s NYT reminds us that this is still an important intervention to clear the housing market and avoid more mortgage defaults.  I wouldn’t agree that there’s no housing recovery—nationally prices are up more than 20% from their trough (Case-Shiller) but as the piece points out, there’s a lot of regional variation therein.  Also, as Chair Yellen has recently stressed, the housing recovery has hit a bit of a stall.

A key theme of my work on this back when was that Fan and Fred—the GSEs—could make a real difference here but their former regulator was stiffly resisting taking action.  So I and others urged the White House to replace him.  They’ve done so but still, nothing yet.  From the oped:

The Federal Housing Finance Agency, which oversees Fannie Mae and Freddie Mac, has refused to allow these two mortgage giants to reduce the principal on underwater mortgages that they own or guarantee. All it would take is for President Obama’s new appointee as F.H.F.A. director, former Representative Melvin Watt, to change the policy, an action that does not require congressional approval. He should do so immediately.

Absolutely—let’s hear from you on this, Mr. Watt.

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2 comments in reply to "Principal Reduction is Still a Good Idea"

  1. PeonInChief says:

    Another thing he might do is order Fannie and Freddie to abide by the provisions of the Protecting Tenants at Foreclosure Act, and Fannie and Freddie published rules on tenant rights in foreclosed properties.


  2. Robert Buttons says:

    It is simply immoral to punish people that are making their payments by taking their tax dollars and giving it to those reneging on contractual obligations.


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