The Federal Housing Finance Agency will announce whether it has found a win-win principal reduction strategy in 30 days, Director Melvin Watt said Tuesday.
Watt made the comment during a Women in Housing and Finance Pubic Policy luncheon in Washington, calling the agency's evaluation the biggest challenge he has taken on as director. He said within 30 days, the agency will either make a decision about the principal reduction strategy or decide to take principal reduction off the table.
The director said the decision involves considering an extremely complicated set of factors, including balancing the decreasing number of borrowers who are both underwater and seriously delinquent with the cost, and significant operational complexity for the government-sponsored enterprises and servicers that would implement a principal reduction program.
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He acknowledged the agency has received criticism for not allowing Fannie Mae and Freddie Mac to offer principal reduction as part of its loss mitigation strategy. Watt engaged in a heated debate with Sen. Elizabeth Warren (D-Mass.) on the subject during a Senate Banking Committee hearing on Nov. 19, 2014.
"For the two years that I have been the director, the FHFA has been methodically studying this issue," Watt said. "My objective, as I have said on numerous occasions, has been to determine whether we could find a win-win strategy employing principal reduction that would benefit both borrowers and the enterprises."
In a statement regarding the director's comments, Carrie Hunt, Executive Vice President of Government Affairs and General Counsel for NAFCU, said principal reduction sets a dangerous precedent.
"It is hard to envision a scenario where principal reduction would result in a win-win for the marketplace overall," she said.
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