Democrats call for principle reduction to help underwater homeowners

It's not an uncommon story since the real estate market took a tumble a few years ago: A homeowner, on their second mortgage, owing a lot more than the house is actually worth. Unfortunately, over 11 million residential properties in the US are having the same problem - they are "underwater." The extreme loss of equity affecting homeowners and their loan to value ratio has some calling for the government to take action and reduce the number of underwater homes. For some, a short sale is a good option - but it's not for everyone.

Lawmakers are now calling for giants Fannie Mae and Freddi Mac, which owns or guarantees 56% of all US mortgages, to reduce the amount underwater borrowers owe, a process called principle reduction.

The idea is that principle reduction would help by giving borrowers more money overall, making it easier to sell their home (not through a short sale or foreclosure), and have the freedom to move closer to work and other job opportunities. This could then help drive economic activity, reduce unemployment, and help the overall housing market.

Some disagree that the government should step in and help underwater homeowners - citing bad decision-making in buying a home they couldn't afford in the first place. Ed DeMarco, acting director of the Federal Housing Finance Agency, says it would cost taxpayers $100 billion, adding that solving unemployment issues is not a responsibility of the FHFA.

Regardless of whether or not the government should help and how, the reality is that millions of homeowners are still at risk of foreclosure.

Read more about it from MarketWatch.