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New York Fed President Urges Mortgage Debt Forgiveness

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The still-sagging housing market has been a point of concern for economists for some time, and now a top official at the U.S. Federal Reserve Board is advocating a controversial new way to stimulate it.

William Dudley, president of the Federal Reserve Bank of New York, recently introduced a plan that would see the federal government and mortgage bond investors pay for the cost of reducing the home loan principals for homeowners facing foreclosure, according to a report from the Financial Times. It was one of several plans Dudley developed to help kick-start the U.S. housing market, which has remained stagnant even as other areas of the economy have improved considerably.

Specifically, the plan would prompt Fannie Mae and Freddie Mac—the government-controlled mortgage-backing giants that either own or guarantee close to half of all mortgages in the country—to slash the principals on home loans to help reduce the foreclosure crisis nationwide, the report said. However, the Fed does not have the power to enact fiscal policy shifts.

“Look, we’re trying to basically convince people that we need to do things here,” Dudley said in a speech last week, according to the site. “There are feasible things that we can do here that can be successful and obviously it’s not in our power to do these things at the Federal Reserve, but to the extent that we can provide information, evidence [and] advocacy that makes people more comfortable this is the way to go, we think that’s what we can contribute to the situation.”

In addition, the White House and Congressional lawmakers have both worked diligently to avoid the more drastic measure of simply cutting home loan debt for struggling borrowers, the report said. The plan would also prompt Fannie and Freddie to loosen mortgage-backing standards as a means of encouraging more would-be borrowers to apply for loans.

The government has already spent a large amount of taxpayer money trying to slow the flood of foreclosures and help keep Americans in their homes with a number of programs, but many were often difficult for even the most troubled consumers to qualify for.

Image: MarissaHuber, via Flickr.com

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