Bookmark this site
Banks, mortgage bond investors and servicers are loath to go further, by forgiving principal, because it’s either a direct hit to capital or tricky to do under current bond documents.
Enter Fannie and Freddie. With unlimited support from Treasury the two have theoretically unlimited capacity to eat losses, useful to Treasury if it wants to finance an expanded modification program that includes principal forgiveness.
It’s a tempting weapon to deploy ahead of midterm elections. But financing principal writedowns with taxpayer money only adds to America’s debt burden while rewarding irresponsible borrowers and lenders.
Read more from the Reuters
