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Is help on the way for underwater homeowners?

(CBS/AP) The tides could be turning in the battle to help homeowners who currently owe more than their home is worth.

It appears the Federal Housing Finance Agency (FHFA) could be open to considering principal write-downs for underwater homeowners, according to a speech by acting director Edward DeMarco to the Brookings Insitution on Tuesday.

FHFA has been the conservator of Fannie Mae and Freddie Mac since 2008.

Long resistant to the idea of principal write-downs, DeMarco released preliminary findings from an FHFA analysis which showed Fannie and Freddie could save up to $1.7 billion if principal reductions were used under the terms of the mortgage modification plan.

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"The anticipated benefit of principal forgiveness is that, by reducing foreclosures relative to other modification types, [Fannie and Freddie's] losses would be lowered and house prices would stabilize faster, thereby producing broader benefits to all market participants," DeMarco said in his speech Tuesday.

Even so, DeMarco cautions that FHFA must consider all options and take into consideration the negative equity borrowers who still pay their mortgages on time. "This is not about some huge difference-making program that will rescue the housing market," DeMarco wrote in his prepared remarks, "It is a debate about which tools, at the margin, better balance two goals: maximizing assistance to several hundred thousand homeowners while minimizing further cost to all other homeowners and taxpayers."

According to the preliminary findings, the number of borrowers potentially eligible for principal reductions is less than one million households - far less than the 11 million underwater homeowners.

U.S. Rep. Elijah Cummings (D-Md.), a supporter of principal reductions for negative equity borrowers, told the Associated Press he was "encouraged that Mr. DeMarco has now begun to move in this direction."

The American Bankers Association (ABA) cautioned against principal reductions, saying the measure would "create an incentive for a huge group of borrowers who have continued making their payments, despite lower home prices, to stop paying in hopes of principal forgiveness."

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"A broad principal reduction program would result in fewer investors who are willing to lend for housing finance, increased borrowing costs and tighter credit availability," the ABA speculated in a statement released to the press.

The consequences of principal reductions should certainly be weighed thoroughly, but it's encouraging to see DeMarco considering the measure. There are homeowners who absolutely bought more than they could afford - that's apparent.

But many more were negatively affected by the burst of the housing bubble and are now stuck in a hole they can't get out of. If lending institutions aren't forced to value homes to the current market, it could be decades before home values rebound.

To view DeMarco's remarks, visit

If you're a homeowner and have questions about whether you qualify for a loan modification or refinancing under the Home Affordable Refinance Program (also known as HARP 2.0), contact the Homeowner's HOPE hotline at 1-888-995-HOPE or go to

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