The Federal Housing Finance Agency is considering a "principal paydown plan"
that would allow bankruptcy judges to grant underwater mortgage borrowers in
Chapter 13 proceedings a five-year reprieve from interest rates. Housing experts
have underline principal balance relief as the best avenue for propping up the
battered market, which is being dogged by $700 billion in negative equity.
According to CoreLogic, about a quarter of homeowners owe more on their mortgage
than the property is currently worth. And the National Association of Consumer
Bankruptcy Attorneys estimates that half of all pending bankruptcy cases involve
residential mortgage claims. Although the White House is not considering the
plan, the FHFA does not need congressional approval to implement the initiative,
which would target homeowners with government-insured loans.