HUD Wants Principal Write-downs

The time has come for those who caused the housing market meltdown to step up to the plate in the effort to keep troubled owners in their homes by writing down underwater mortgages, Department of Housing and Urban Development Secretary Shaun Donovan told a somber group of mortgage bankers in Washington. While not every owner can be saved from foreclosure, he told the Mortgage Bankers Association's annual National Policy Conference, principal write-downs can be effective for a "targeted set of borrowers." Noting that Bank of America has already said it will expand the use of write-downs, and that other major lenders are expected to do the same, Donovan predicted that the trend will accelerate as a growing number of lenders and investors "come to the conclusion that it is in their interest to write down the value of underwater mortgages rather than incur the substantial cost of foreclosure." Donovan said that government should not and cannot be expected to bail out the "relatively small base" of borrowers who qualify for a principal write-down. Rather, he added, the burden belongs on lenders and investors, which "is where it should be. There are limits to what the public sector can do or should do," he said. "Taxpayers have already paid a very heavy price for the irresponsible and sometimes unethical behavior of those that precipitated this crisis." Donovan also told the conference that private capital is beginning to move off the sidelines and back into the market for private-label mortgage-backed securities.