Principal Reduction Program: Good or Bad?
By now you may have heard that at the end of last month, the Federal Housing Finance Agency (FHFA) announced that Freddie Mac and Fannie Mae would not be lowering mortgage principals for struggling homeowners. The reason? An analysis completed by the FHFA concluded that principal reductions would not prevent foreclosures while saving taxpayers money. Some of their specific concerns and arguments against the “bailout” include:
- Mortgage companies would need to spend time and money implementing a principal reduction program.
- The time it takes to implement the program would delay a resolution for some homeowners.
- Some borrowers may feel enticed to fall behind on their mortgage payments so they can receive assistance from the program.
- Credit availability could be compromised in the future due to added uncertainty by investors.
What’s Your Take?
Following the FHFA’s decision, Treasury Secretary Tim Geithner argued that such a program would actually save taxpayers up to $1 billion and urged the FHFA to reconsider their stance. Whose side are you on? Do you think a principal reduction program would be good or bad for the housing market and economy? Share your thoughts with us!
Read more about this topic in a recent article from CNNMoney.com.