So, if Federal Housing Financy Agency Acting Director Edward DeMarco greenlights a principal reduction program for GSE loans, where does the money come from?

An editorial in The Wall Street Journal Monday left it vague, saying the Treasury Department would "take a chunk of the $20.9 billion in leftover TARP funds" to pay for the write-downs.

The specific spending plan though has actually already been approved by Congress.

The Dodd-Frank Act authorized Treasury to use $45.6 billion for foreclosure prevention under the Troubled Asset Relief Program. Of which, $29.9 billion has been set aside for the Home Affordable Modification Program and all the army of acronyms therein (HAFA, UP, 2MP, etc.) and the principal reduction program, called PRA.

In October 2010, Dodd-Frank ended all commitments under TARP, meaning the $45.6 billion and the $29.9 billion numbers are set. However, the $29.9 billion can be moved between programs.

To date, the Treasury has kept aside roughly $9 billion in incentive payments for modifications already done through the program, which pays out to servicers, investors and homeowners over five years (so long as the borrower remains current).

But the $9 billion figure does not include the homeowners yet to come through the program when it was expanded in January. That month, the Treasury eased debt-to-income requirements, pushed the program out another year to the end of 2013 and agreed to pay out more of the $29.9 billion to investors who allow principal reduction.

According to the special inspector general of TARP, the Treasury paid out $8.8 million in incentives under PRA as of December. But since then, participating servicers wrote down principal on nearly 9,000 portfolio and private-label mortgages and maintained about the same monthly average since the fall of last year.

The editorial in the WSJ posits the idea of using this money instead to reduce the national debt.

But if the FHFA does decline the offer, it's unlikely the money will go to such a cause. HUD Secretary Shaun Donovan said on C-SPAN over the weekend the Obama administration would explore other avenues to assist homeowners anyway.