The critical point made in the Democratic Congressmen's letter to FHFA is this:  Director DeMarco's widely reported claim that principal write-downs on Fannie and Freddie mortgages will cost taxpayers $100 billion is simply false.  There are two reasons the statement is a complete misrepresentation.  First, the $100 billion is simply the aggregate amount of underwater mortgage principal on all Fannie and Freddie loans, not just those at risk of foreclosure or where borrowers are seeking modifications.  Second, Fannie and Freddie will lose more than $100 billion on underwater loans in foreclosure sales, according to their own projections, if the loans aren't given principal write-downs.

The relevant comparison is between the foreclosure losses on underwater and defaulted mortgages, on the one hand, and the net payouts from modified mortgages with principal reduction on the other hand; in other words, the dollar difference between doing the write-downs and not doing them.  FHFA's own analysis shows that changing from the current policy–to postpone but not eliminate excess mortgage principal–to a policy of writing down that excess principal, would yield a positive net present value of $28 billion.  This is because fewer homes would end up in foreclosure sales, where losses exceed 50% of principal, and more homeowners could pay their (reduced) debt.