The federal agency that regulates Fannie Mae and Freddie Mac is expected any day now to update its position on so-called "mortgage principal reduction," lowering the amount owed on a home loan in exchange for a higher likelihood of repayment. The Federal Housing Finance Agency is reluctant to allow principal reductions at Fannie and Freddie, even though many private banks write down principal for delinquent borrowers that are deeply "underwater," meaning they owe more than their home is worth.
The above excerpt was originally published in American Banker.
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