Writing down the value of underwater mortgages backed by Fannie Mae and Freddie Mac could save the federal government as much as $2.8 billion, the Congressional Budget Office said Wednesday.
An analysis by the CBO estimated that 1.2 million borrowers could be eligible for a government-backed principal forgiveness program, representing 40 percent of all underwater borrowers and 4 percent of all borrowers with mortgages backed by Fannie Mae and Freddie Mac. The study found that 43,000 mortgage defaults could be avoided, saving the government $2.8 billion, if mortgage loans were written down to 100 percent of a home’s current value.
Principal forgiveness to 90 percent of a home’s current value would lead to 95,000 fewer defaults and save the government $2.2 billion while the government would only save $0.2 billion in a program where home loans were written down to 115 percent of a home’s assessed value, the CBO said.
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