House Republicans Jump Back Into Principal Reduction Debate

WASHINGTON — House Republicans are wading back into the debate over whether to allow principal reductions on Fannie Mae and Freddie Mac mortgages.

In a letter to the Federal Housing Finance Agency on Monday, the top Republicans on the House Financial Services Committee posed a series of questions that highlight some of the possible downsides of allowing write-downs.

The Republicans asked the agency to provide its views on whether FHFA has the statutory authority to reduce mortgage principal at government wards Fannie and Freddie. In the past, the agency's acting director, Edward DeMarco, has raised questions about whether such authority exists.

The GOP representatives also asked the agency to estimate how many borrowers who are current on their mortgages would strategically default in order to get a principal reduction.

Despite the letter's emphasis on the potential negative consequences of principal reductions, the Republicans did not express an explicit view on what FHFA should do, stating that "it is imperative that the FHFA act only after a full and fair examination of the issues."

The letter was signed by Financial Services Committee Chairman Spencer Bachus and Vice Chairman Jeb Hensarling, along with subcommittee chairs Randy Neugebauer, Judy Biggert, Scott Garrettt, Shelley Moore Capito, Gary Miller and Ron Paul.

Congressional Republicans have long expressed solidarity with Edward DeMarco, the FHFA's acting director, as he has resisted Democratic pleas to allow principal write-downs. But in recent weeks, as congressional Democrats and the Obama administration have turned up the heat, the GOP had been largely quiet on the matter.

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