Fannie Mae, Freddie Mac mortgage forgiveness would be weak potion

WASHINGTON: After resisting the idea for years, the regulator of the US home loan giants is humoring a new policy effectively reducing principal on loans. The plan could slow the enterprises' near-term losses, but would prolong their agony and do little to heal the housing market.

The Federal Housing Finance Agency, the US regulator in charge of mortgage giants Fannie Mae and Freddie Mac, is discussing a new proposal to help struggling borrowers who owe more on their mortgages than their home is worth.

The plan would reduce the mortgage interest rate to zero for five years and then price the loan at the market mortgage interest rate for the remaining twenty-five years. This would allow borrowers' payments during the first five years to only reduce principal.