Debt Cuts Possible for Underwater Homeowners

(Bloomberg) — Fannie Mae and Freddie Mac’s overseer wants to allow debt cuts for a narrow group of borrowers who owe more than their homes are worth. The trick is figuring out a way to do it without incurring costs for taxpayers.

Federal Housing Finance Agency Director Melvin L. Watt told reporters Wednesday that he is still studying the idea of reducing principal on properties with depressed values, a step backed by housing advocates and Democratic lawmakers.

Watt, a former Democratic congressman who has been in the FHFA job for just over a year, met with reporters for a broad discussion of his policies, which apply to the more than half of home loans backed by Fannie Mae and Freddie Mac.

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