Last week, Congressman Barney Frank (D-MA), Chairman of the House Financial Services Committee, sent a letter to the chief executive officers of Bank of America, Citigroup, JPMorgan Chase and Wells Fargo insisting that the financial institutions adopt measures to facilitate principal reductions on second mortgages. Despite recent efforts by Congress and the Obama Administration to address housing foreclosures “by enabling and encouraging loan modifications,” Chairman Frank said that “the private sector’s response has fallen far short of the need” and urged the banks to move “past temporary modifications in interest rates or terms and focus on permanent principal reductions that result in truly sustainable mortgages.”

Chairman Frank noted that "many investors in first-lien mortgages" have been willing to accept losses on their investments, but "holders of second-lien mortgages are now a principle obstacle to many modifications." He noted that many second liens retain no real intrinsic economic value, but "accounting rules allow holders of these seconds to carry the loans at artificially high values,” leading many to "refuse to acknowledge the losses and write down the loans, which would allow willing first lien holders to reduce principal and keep borrowers in their homes." Characterizing the four financial institutions as “the major participants in the second lien market,” Chairman Frank emphasized that "failure to modify these debts has become a major and unnecessary obstacle to thousands of Americans being able to stay in their homes.” He urged the banks to adopt immediate measures to write down the second mortgages and “allow principal reduction modifications of the underlying first liens to take place.”