After writing yesterday about some of the details of mortgage modification agreements we've seen recorded recently, I was interested to read in today's New York Times that the Federal Housing Finance Agency, the entity that now controls Fannie Mae and Freddie Mac and a longtime opponent of principal reductions as a way of assisting underwater homeowners, may now be reconsidering that position. FHFA has consistently taken the position that the overall cost to taxpayers of principal reductions would exceed the benefits derived from the measure and so has resisted calls to make such reductions. As the Times story suggests, that might be changing.
I'm not sure if principal reductions will provide much of a boost to the housing market. But doing nothing will provide no benefit; it will just drag out the sluggish real estate market.