by John L. Ligon, Norbert J. Michel, Filip Jolevski
The Heritage Foundation
December 18, 2013
Should the Federal Housing Finance Agency (FHFA) expand home mortgage modification policy to include principal reduction alternatives (PRAs)? For the past five years, the FHFA has maintained a consistent stance that implementing a PRA policy would come at a high cost to taxpayers with little benefit overall to homeowners. On the other hand, the Federal Housing Administration (FHA)—under the regulatory and policy guidance of the Department of Housing and Urban Development—has expanded its PRAs since 2010. Until Congress finally resolves the important reform issues surrounding Fannie Mae and Freddie Mac and government guarantees in the U.S. housing market, the FHFA should not begin any new mortgage modification programs, specifically any PRA programs.