New Movement on Mortgage Write-Downs?

A new proposal from the Treasury Department could make it easier for Fannie Mae and Freddie Mac to reduce the principal on the many thousands of underwater mortgages they hold, helping people stay in their homes. This proposal puts new pressure on Edward DeMarco, who as acting director of the Federal Housing Finance Agency oversees these mortgage giants.

DeMarco has been resistant to a wave of public pressure to write down mortgages for those homeowners who are stuck paying more than their home is worth. The new Treasury proposal could change his calculations—and should encourage advocates for homeowners to step up their efforts.

For years, the federal regulator overseeing the taxpayer-backed mortgage-finance giants has resisted calls to have the firms cut loan balances, often referred to as principal write-downs. But in recent weeks he has come under intense pressure to change course, especially now that the U.S. Treasury is offering to split the cost…

Fannie and Freddie have run new analyses that show the companies could save more money by reducing principal because of the Treasury payments, according to people familiar with the matter. Still, officials at both companies, particularly Fannie, haven’t reached consensus over whether the benefits of taking the sweetened offer outweigh other costs, these people said.

Even this important step would likely still only affect a percentage of the homeowners whose homes lost value in the financial collapse—but giving extra support to a few hundred thousand homeowners would be a boost to the economy.

The former FDIC head Sheila Bair, who spoke out about the dangers of the sub-prime market before the crash, says we need to be doing more to keep people in their homes—including “restructr[ing] the mortgage to get the borrower paying again.” She has spoken out before about the need for principal reductions, and has an admirable record of raising the apparently controversial point that the finance industry should support the economy, not replace it.

As DeMarco runs out of excuses, we need to keep the pressure up. Tell him to do his job and stand up for homeowners here.