There have been so many rumors in the market place regarding lenders considering offering loan modifications with principal reductions due to the decline of American home values.  Below is information in that regard, announced 7/31/12 by the director of the Federal Housing Financing Agency.  FHFA is the agency that regulates the operations of Fannie Mae, Freddie Mac, and the 12 Federal Home Loan Banks providing $5.7 trillion in funding for the U.S. mortgage markets and financial intuitions. 

STATEMENT BY EDWARD J. DEMARCO, ACTING DIRECTOR,

FEDERAL HOUSING FINANCE AGENCY, ON THE USE OF PRINCIPAL FORGIVENESS BY FANNIE MAE AND FREDDIE MAC

Today, I provided a response to numerous congressional inquiries as to whether the Federal Housing Finance Agency (FHFA) would direct Fannie Mae and Freddie Mac to implement the Home Affordable Modification Program Principal Reduction Alternative (HAMP PRA). After extensive analysis of the revised HAMP PRA, including the determination by the Treasury Department to begin using Troubled Asset Relief Program (TARP) monies to make incentive payments to Fannie Mae and Freddie Mac, FHFA has concluded that the anticipated benefits do not outweigh the costs and risks. Given our multiple responsibilities to conserve the assets of Fannie Mae and Freddie Mac, maximize assistance to homeowners to avoid foreclosures, and minimize the expense of such assistance to taxpayers, FHFA concluded that HAMP PRA did not clearly improve foreclosure avoidance while reducing costs to taxpayers relative to the approaches in place today.