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Zandi Sees Benefits From 'Targeted' Mortgage Reduction

Moody's Analytics Chief Economist Mark Zandi
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Moody's Analytics Chief Economist Mark Zandi

Mark Zandi, the chief economist at Moody's Analytics, who's reportedly the front-runner to become the White House's next housing czar, said there were benefits to mortgage writedowns for underwater homeowners but admitted there were also risks from such a move.

"This is a very contentious issue(...) It's very important to take the heat out of this. It's a cost-benefit analysis and there are lots of costs, the most important is moral hazard," Zandi told CNBC Europe's "Squawk Box."

"But there are also benefits, if you are able to do this in a very targeted, consistent way and you reduce the number of foreclosures, everyone would agree that's a great thing because foreclosures are incredibly costly, not only to the homeowner but also to the community they're in."

Zandi said he had no comment on reports that he is set to become the next head of the Federal Housing Finance Agency, the regulator of the mortgage finance giants Freddie Mac and Fannie Mae, which were taken into public ownership in 2008 after their collapse during the subprime mortgage crisis.

"I'm a complete open book on housing policy," Zandi added. "We've made a lot of progress, we're watching liquidity and that's keeping interest rates low (...) we do need to nail down a few more rules."

He's been critical of the housing finance agencies Fannie Mae and Freddie Mac and has said they need to leave government conservatorship. In testimony before the House and Senate in February last year, Zandi said that while the six-year housing crash was easing, prices were still falling and the sector remained a threat to the U.S. economy.

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