Mortgage principal reductions not in Obama’s plans

The Obama administration has no immediate plans to encourage mortgage principal reductions through its foreclosure prevention program, the Treasury Department said yesterday. The announcement comes amid mounting pressure from banking regulators and attorneys general in 14 states, who have said that with so many homeowners now underwater, reducing loan balances may be the only way to curtail the foreclosure crisis. The administration’s program, which was announced last February, aims to reduce borrowers’ loan payments but has met with criticism over still-rising delinquencies and its failure to thus far turn many temporary loan modifications into permanent ones. An administration report released last week said only 7 percent of borrowers in the program had received permanent modifications by the end of 2009, largely due to issues with paperwork. More than 70 percent of loan modifications have actually resulted in an increase in principal because of unpaid interest and fees, according to a report by state attorneys general and banking regulators. “The failure to reduce principal jeopardizes the sustainability of loan modifications,” said Mark Pearce, North Carolina’s deputy banking commissioner. [WSJ]