Experts: Principal Write-Downs Risky for Housing

July 8, 2011

Principal reductions on mortgages “would negatively impact the housing market, reduce home loans, and potentially put home ownership out of reach for millions of Americans,” Alabama Attorney General Luther Strange wrote in submitted testimony, along with Mortgage Bankers Association President David Stevens, to the House Committee on Financial Services.

The committee is involved in an ongoing settlement between federal regulators and the nation’s largest mortgage servicers. Among the proposed settlement suggestions has been a push for mortgage principal write-downs for struggling home owners.

"A mandated principal write-down would create an incentive for these home owners to default and seek a reduction," Strange said in the testimony.

Stevens, who is also a former Housing and Urban Development Assistant Secretary and Federal Housing Administration Commissioner, said principal mortgage reductions would have a "disparate impact on servicers or note holders." Instead, he favors rate and term mortgage modifications and principal forbearance.

Source: “State AG, US MBA: Principal Write-Downs Bad for Housing,” Market News International (July 6, 2011)