Money manager BlackRock criticized the use of principal forgiveness in state and federal settlements with banks over faulty foreclosure practices saying they could encourage homeowners to default, according to a Bloomberg article.

That creates an “Armageddon scenario,” BlackRock Vice Chairman Barbara Novick said Wednesday at a press briefing.

“If you start having people who are currently paying their underwater mortgages say, 'Oh there’s a new entitlement program: My brother-in-law got a deal, my neighbor got a deal, my officemate got a deal, why shouldn’t I get a deal?’ then you’ve got a much, much bigger problem,” she said at the company’s offices in New York. “Not to belittle the current problem, but it would dwarf the current problem.”

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kcurry@housingwire.com