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Principal reductions - the merits of which have been debated strongly in recent years - are gaining some support from lawmakers.
[IMAGE]Two congressmen are pushing to subpoena the ""Federal Housing Finance Agency"":http://www.fhfa.gov/ (FHFA) for its analysis of the potential effects of principal reductions by the GSEs.
""Rep. Elijah E. Cummings"":http://democrats.oversight.house.gov/index.php?option=com_content&view=article&id=5562:cummings-tierney-urge-issa-to-subpoena-documents-from-fhfa-on-principal-reduction&catid=3:press-releases&Itemid=49 (D-Maryland) and ""Rep. John F. Tierney"":http://tierney.house.gov/index.php?option=com_content&view=article&id=3192:tierney-continues-to-call-on-fhfa-to-allow-mortgage-modifications-and-keep-families-in-their-homes-&catid=47:press-archives&Itemid=500218 (D-Massachusetts) sent a letter Wednesday to Chairman Darrell Issa (R-California) urging him to issue a subpoena after several failed attempts to procure the desired information from the FHFA themselves.
Tierney first requested the FHFA's principal reduction analysis at a congressional committee hearing in mid-November when FHFA Acting Director Edward DeMarco stated that the FHFA had determined ""the use of principal reduction within the context of a loan modification is not going to be the least-cost approach for the taxpayer.""
[COLUMN_BREAK]DeMarco also testified that the FHFA is not permitted to allow principal reductions from the GSEs. Tierney also requested DeMarco provide ""the statutory authority"" for this claim.
After the hearing, Tierney sent a letter to DeMarco requesting the information by December 9. However, DeMarco ""has failed to provide even a single document,"" states the letter sent to Issa Wednesday.
Meanwhile, ""over the past several months, officials with the Federal Reserve have made strong public statements supporting principal reduction,"" Cummings and Tierney state in their letter.
For example, Federal Reserve Chairman Ben Bernanke stated in a recent ""white paper,"":http://www.federalreserve.gov/publications/other-reports/files/housing-white-paper-20120104.pdf ""Principal reduction has the potential to decrease the probability of default (and thus the deadweight costs of foreclosure) and to improve migration between labor markets.""
Furthermore, Bernanke stated that principal reduction could lead to lower default rates, especially among homeowners at risk of strategic default.
Cummings and Tierney also pointed to comments from William Dudley, president of the New York Federal Reserve Bank, who stated in December, ""[we] think that you can devise a program that, for home buyers that have mortgages that are underwater, to incent them to continue to pay on those mortgages by giving them some program of principal reduction.""
With no response from DeMarco and growing support for principal reductions, Cumming and Tierney say it is time to ""compel Mr. DeMarco's compliance.""
