“Principal reductions are necessary to help ameliorate the housing crisis,” Lippmann, chief investment officer for New York-based hedge fund LibreMax Capital LLC, said in an Oct. 31 letter to investors obtained by Bloomberg News. The step will also lower losses on loans underlying mortgage bonds, he said.
Lippmann, who co-founded LibreMax last year and oversees more than $900 million, joins a growing group of advocates for the increased use of mortgage modifications designed to keep borrowers in their homes by reducing their loan amounts. Current efforts to rework home loans mainly only lower monthly payments.
Pacific Investment Management Co., manager of the world’s largest bond fund, Harvard University economics professor Martin Feldsteinand California’s attorney general are supporting mortgage forgiveness after the biggest drop in U.S. home values since the Great Depression left almost a quarter of mortgage borrowers owing more than their properties’ values, according to CoreLogic Inc. data.
Fannie Mae and Freddie Mac, the mortgage firms overseen by Federal Housing Finance Agency Acting Director Ed DeMarco, and lenders including Bank of America Corp. (BAC) have resisted calls for widespread cuts to mortgage balances, saying the move is unnecessary or may encourage more homeowners to default.
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