Eleven Democratic attorneys general sent a letter Thursday to the Federal Housing Finance Agency arguing for swift implementation of principal reduction on Fannie Mae and Freddie Mac-related mortgages.

Led by Massachusetts AG Martha Coakley, the letter, addressed to FHFA Acting Director Edward DeMarco, says the “financial stability of Fannie Mae and Freddie Mac will not be harmed if they engage in principal forgiveness and according to new data could save close to $1.7 billion.”

Last week DeMarco said the FHFA will likely make a decision regarding mortgage principal forgiveness in April. The agency is evaluating added incentives from the Treasury Department to write down loan principal under the Home Affordable Modification Program.

Mortgage policy analysts hold conflicting expectations for principal reduction on Fannie and Freddie loans following the release of preliminary analysis from their regulator Tuesday.

In the letter, the attorneys general argue that the increase in incentive payments to investors for allowing forgiveness under the Home Affordable Modification Program should reduce concerns regarding the potential impact on the financial stability of government-sponsored enterprises.

“We will soon see the results of the country’s largest banks implementing principal loan reduction as required under the recent Multistate Servicing Settlement,” the letter states. “It is now time for the FHFA to accept the fact that principal forgiveness programs help borrowers, help communities and can improve the creditors’ bottom line.”

As part of their argument, the attorneys general point out that more than five million people lost their homes due to foreclosure during the past five years. “Because Fannie and Freddie own a majority of the nation’s home loans, they must be a leader in the arena of loan modification best practices, and not an obstruction,” they say.

Attorneys general from California, Delaware, Illinois, Iowa, Maryland, Minnesota, New Mexico, New York, Oregon and Vermont signed the letter.

“This new letter with additional facts, now backed by 10 additional Attorneys General, reflects a growing consensus around this issue,” the concludes the letter, which is the second sent to DeMarco within the past two months.

In February, Coakley insisted the FHFA allow for principal reduction to increase loan modifications and help stabilize the housing economy.




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