From the NEW YORK TIMES Column:
…As of last September, only 2.5 percent of Fannie and Freddie mortgages were seriously delinquent, versus 7.2 percent for banks’ mortgages.
Still, the crowd clamors for widespread Fannie and Freddie write-downs, even though they would constitute a direct and sizable gift from taxpayers to the largest banks.
Here’s how: Many banks hold second liens on the same properties for which Fannie and Freddie either own the first mortgage or have guaranteed. If principal amounts on these first mortgages are reduced while leaving the second liens intact, those seconds become much more likely to be paid off over time. With no principal reduction, the banks would have to write off many of those second liens…
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