Mortgage Principal Reductions Weighed for Fannie, Freddie

The conservator of Fannie Mae and Freddie Mac may let servicers forgive debt on a limited number of mortgages owned or guaranteed by the taxpayer-owned companies, according to a person with direct knowledge of the discussions.

The model could be a new California effort that will pay for writedowns using federal dollars set aside for regions that have seen the worst housing-market declines, the person said. Because the government will bear the full costs of the California program, mortgages backed by the two government-sponsored enterprises will be eligible for the first time.