Is Principal Reduction Fair?
Principal Reduction on its own may not be fair. But, there is a way to reconcile the Moral Hazard. In the loss mitigation arena, by avoiding inefficient foreclosures, HEFIs may help homeowners, as well as lenders, government, taxpayers and communities. HEFIs require that homeowners give up something to get something – in return for principal reductions, they forego a portion of current equity as well as a percentage of future appreciation. A HEFI program need not involve any additional government subsidy.
