Regulator considers mortgage debt reduction for bankrupt: report

WASHINGTON Tue Dec 20, 2011 11:53pm EST

WASHINGTON (Reuters) - The regulator for Fannie Mae and Freddie Mac is actively considering a proposal that would allow for a reduction in the outstanding mortgage debt of homeowners in Chapter 13 bankruptcy, Financial Times reported on Tuesday.

The plan under review by the Federal Housing Finance Agency would call for the mortgage financing companies to allow bankrupt homeowners who owe more on their housing debt than their homes are worth to pay zero per cent interest for five years, the report said.

Participation in the debt reduction program would be subject to approval by bankruptcy judges, the FT said.

Details of the proposal were laid out in a letter to Congress dated Monday, the newspaper reported.

Fannie Mae and Freddie Mac, combined with the Federal Housing Administration support, about 90 percent of all U.S. mortgages.

An FHFA spokeswoman confirmed the proposal to assist underwater homeowners was under discussion, but declined to provide additional details, the FT said.

But the White House said the proposal was not under consideration.

"While we continue to talk to the FHFA and other market participants about ways to help borrowers and support the housing market, the administration is not at this time considering this particular idea," White House spokeswoman Amy Brundage told FT.

Spokesmen for the White House and FHFA were not immediately available for comment on the FT report late on Tuesday.

(Reporting By JoAnne Allen; Editing by Muralikumar Anantharaman)

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Comments (1)
Snoops wrote:
The number of bankruptcies would skyrocket. Banks that had nothing to do with the bailouts (small banks) would be hurt. Nope. People made an investment in their home, they signed a contract for a certain amount of money that was loaned to them. What’s next, people get all their 401k money back that they lost in the crash? Why not? Same principle.

Dec 21, 2011 1:10am EST  --  Report as abuse
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