Geithner urges Fannie, Freddie to do loan write-downs

Fannie Mae and Freddie Mac should make use of Obama administration programs to help borrowers who owe more than their home is worth by writing down principal, U.S. Treasury Secretary Timothy Geithner said on Thursday.

We think there is a pretty good economic case for Fannie Mae and Freddie Mac to participate in those programs, and we are in the process of talking to the about those, about the merits of those programs, about their concerns, Geithner said, in response to a question from the Congressional Oversight Panel.

Earlier this year, the Federal Housing Administration announced a program that would provide government incentives to lenders who reduce principal for borrowers who are current on a mortgage whose balance exceeds the home's worth. The Treasury Department has a similar program.

But the FHA's short refi program has won little participation -- just three modifications of 61 applications.

So far, finance giants Fannie Mae and Freddie Mac have been reluctant to do principal write-downs because doing so would increase their losses and require them to get more taxpayer funding. Fannie Mae and Freddie Mac have taken more than $150 billion in funding directly from the Treasury since they were taken over by the government during the financial crisis in late 2008.

The independent regulator of Fannie Mae and Freddie Mac, which is called the Federal Housing Finance Agency, has not required Fannie and Freddie to do principal write-downs.

I can't say at this point whether I think they are likely to adopt them or not, Geithner said. We are trying to make sure we understand their concerns and they've got a different set of objectives, in some ways, different constraints. But I am hopeful that they are going to find a way to participate in many of these programs.

(Reporting by Corbett B. Daly; Editing by Jan Paschal)