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Research Papers

Appendix to FHFA Review of Options

Published: 7/31/2012
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​In January 2012, FHFA released the analyses the agency had conducted since December 2010 on the feasibility and benefit of principal forgiveness as a loan modification tool. This paper presents the agency’s most recent work, which considers subsidy payments2 the Department of the Treasury would provide to Fannie Mae and Freddie Mac (the Enterprises) for reducing principal under the Home Affordable Modification Program (HAMP).

This paper is limited to an account of FHFA’s model-based research. It does not include a discussion of, nor do the results presented reflect the complex challenges, significant costs, and substantial time required to implement the HAMP Principal Reduction Alternative (HAMP PRA)—the HAMP modification that includes principal forgiveness. The Enterprises already participate in the original HAMP modification program, referred to as "standard HAMP."

After a brief introduction, the analyses are presented in three sections:

    • Isolated Analysis of Principal Forbearance and Forgiveness
    • Incorporation of the HAMP and HAMP PRA Waterfalls 
    • Optimal HAMP Modification ​
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