FDIC Chief: Writedowns More Feasible Now

Now that Congress has changed the tax laws on debt forgiveness, it is more feasible for servicers to write down the principal amount of a mortgage to help struggling borrowers, according to a federal regulator. "Such an option might be considered for borrowers having financial difficulties making their payments after their loans reset and where foreclosure is a looming possibly," FDIC Chairman Sheila Bair told a Senate panel. The Federal Deposit Insurance Corp. chairman noted that Congress has passed the Mortgage Forgiveness Debt Relief Act, so borrowers no longer have to pay taxes when the principal amount of their mortgage is reduced. Servicers should "carefully consider" whether writedowns or forgiveness of arrearages of principal and interest are "better options than foreclosure, or even short sales in appropriate circumstances," Ms. Bair testified.