Divided Lines Over Mortgage Write Downs

The mortgage debt crisis has sparked much debate among policy makers. While the government is working to slow down and even reverse the effects of the foreclosure epidemic, many are bringing forth ideas intended to produce change. One idea receiving heavy attention is that of mortgage principal write downs.

Help For Sinking Mortgages

With a large portion of homeowners in underwater mortgages policy makers have tossed around the idea of mortgage principal write downs as a solution for righting the upside down. The idea is to lower the overall owed debt on a mortgage that belongs to a home whose value has significantly depreciated. Some say that bridging the gap between what is owed and what the home is worth can stave off foreclosure and help bring home values back to their deserved level. However, not everyone agrees.

Those opposed to mortgage principal write downs point to several factors as their cause of concern. First, forcing lenders to write down mortgage principals on underwater homes is likely to cause financial distress within the lending industry. It wasn’t but two short years ago that lending giants Freddie and Fannie needed a government bailout to stay afloat; forcing write downs has the potential to repeat this pattern. Critics also are concerned about the moral aspect of write downs. Some argue that this strategy could send the wrong message to borrowers, essentially encouraging more default and less homeowner responsibility.