A group of residential mortgage-backed bondholders railed against the $25 billion foreclosure-practices settlement with major U.S. mortgage servicing banks, as analysts said it may encourage the firms to pay for their mistakes with private investor dollars.

The Association of Mortgage Investors held a call with more than 50 investors on Thursday to discuss the impact of the settlement that paves the way for cuts in loan principal for homeowners behind on their payments, said Vincent Fiorillo, a portfolio manager with DoubleLine Capital, the $25 billion Los Angeles fund management firm run by bond veteran Jeffrey Gundlach.

Bondholders are worried that servicing firms may have incentives to be aggressive on principal cuts on investor loans—in addition to bank-owned loans—to meet settlement goals. It could direct losses away from the banks whose foreclosure flaws triggered the yearlong investigation by 50 state attorneys general, they said.

Jonathan Lieberman, managing director of New York investment firm Angelo, Gordon & Co., which oversees $22 billion, said the government was picking winners and losers, and doing long-term damage to the mortgage market where bond investors provide much of the funding for U.S. housing.

“I see a continued erosion of responsibility, community, standards of care, moral values, and fiduciary standards,” Lieberman said in remarks prepared for the AMI’s conference call. “There is no penalty.”

Under the settlement, banks must spend $17 billion to help homeowners, receiving different “credits” depending on the relief. Around $10 billion of that amount must go towards writing down loan balances for borrowers who are at risk of foreclosure. Banks receive $1 of credit for each $1 they write down in loans that they own, and around 45 cents of credit for writing down loans held by investors.

Officials pushed back against investors’ concerns when unveiling the settlement Thursday with Ally Financial Inc., Bank of America Corp., Citigroup Inc., J.P. Morgan Chase & Co. and Wells Fargo & Co.

Nothing in the agreement would require trustees or servicers to reduce principal where it isn’t already permitted under the contracts that govern those deals, said Shaun Donovan, the secretary of U.S. Department of Housing and Urban Development.

“The misunderstanding somehow that the investors will be paying the banks’ share is just false,” he said on Thursday. He said such write-downs would probably account for no more than 15% of all principal reduction in the settlement, a “relatively small share.”

Donovan said said write-downs would be mostly limited loans bundled into securities by Countrywide Financial, which Bank of America acquired in 2008.

Bank of America has a pending legal agreement with those bondholders that would offer more flexibility in how it manages those loans. “Our expectation is that the vast majority of private-label security loans that are reduced in principal as a result of this would be the old Countrywide loans,” he said.

Investors including BlackRock Inc. have previously claimed they have already taken losses unfairly from banks that have modified mortgages backing their bonds ahead of bank-owned subordinated loans. Investors in private mortgages, versus loans guaranteed by government entities Fannie Mae and Freddie Mac, have registered more than $350 billion in losses since January 2007, the AMI said.

Chris Katopis, executive director of the AMI, said the final terms of how the settlement would be implemented weren’t yet made available to investors, and worried about transparency. “Investors were fleeced,” he said.

Bloomberg News

Fed Chairman Ben Bernanke speaking Friday at the National Association of Homebuilders International Builders’ Show in Orlando.

What more can the Federal Reserve do to help the home-building industry?

That was the question in the air when Fed Chairman Ben Bernanke took the podium Friday at the National Association of Home Builders’ International Builders Show for a keynote speech.

Thanks to Fed monetary policy, interest rates on 30-year fixed mortgages are already at or near their lowest levels in recorded history, making it cheaper than ever for consumers to finance the purchase of a home. And two weeks ago, Mr. Bernanke signaled publicly that short-term interest rates will remain low through 2014.

But clearly that hasn’t been enough. There were just 302,000 new homes sold in 2011, the lowest level on record, and housing starts remain in the dumps as well. To boot, the inventory of foreclosed homes is expected to grow by 1 million units per year for the next several years, based on Fed estimates, Mr. Bernanke said, which could further drive down prices and make it harder for new-home builders to compete with the existing-home inventory.

The Fed laid out its support for a foreclosure-to-rental program to reduce the overhang of empty and foreclosed houses last month in a 26-page white paper urging Congress to take action on housing. Mr. Bernanke reiterated that support Friday.

“Keeping paying tenants in homes — including leasing to the former owners at market rents — may, in some cases, be the best way to maintain property values and the quality of neighborhoods,” he said. “REO-to-rental programs could potentially also minimize the amount of time that a vacant property languishes in REO inventory.” He urged policymakers to pursue REO-to-rental programs, but warned that they are not a “silver bullet” for the housing market.

Mr. Bernanke’s speech also touched on the frustration felt by many housing policy makers and market experts, which is that many homeowners can’t take advantage of low interest rates to buy or refinance a home because of continued home-price declines. Problems with foreclosures and other factors that drive down homes prices are “constraining some of the effects that monetary policy should be having on the economy,” he said.

“To some extent the tightening of credit is to be expected . We know that credit standards became very lax before the crisis and for the safety of banks and the safety of our financial system and for the protection of borrowers, some tightening was no doubt necessary. That being said, I think the pendulum has probably swung too far in the other direction by this time.” he said during a question-and-answer session following his speech.

The audience applauded Mr. Bernanke’s remarks when they focused on housing as a solution, rather than a cause of the nation’s economy problems. In the question-and-answer session, Mr. Bernanke received a round of clapping for remarking on “how central to the recovery housing is.”

Another question came from a New York real estate investor who complained that banks won’t extend more than four mortgages because of certain rules put in place by investors and banks. In 2008, Fannie Mae and Freddie Mac, the main funders of mortgages, faced soaring losses from speculators and reduced to four from 10 the number of loans they would guarantee to any one owner. Fannie now backs as many as 10 loans, but some banks have kept lower limits.

“The reason for [the limit on lending to investors] is historical. Going back to the ’80s and ’90s, banks and [Fannie and Freddie] have had worse experiences with investors than homeowners generally,” Mr. Bernanke said. “At this time though, I think those policies are actually pretty counterproductive. We have all these homes on the market…investors out there would like to buy them and manage them and resell them, fix them up. What’s wrong with that? We’d like to see more of that happening.”

Four Seasons Hotels & Resorts

A rendering of the Four Seasons resort being built in Orlando.

ORLANDO – Four Seasons, like many other U.S. hotel brands, is finding that most of its expansion opportunities lie abroad. Of the 86 hotels that Four Seasons operates, 30 are in the U.S. That ratio will shrink over the next five years, because only three of the 29 hotels the luxury chain intends to open in that span will be in North America.

That’s what makes the Four Seasons Resort set to rise in Orlando near Walt Disney World so unusual. With 445 rooms, it is the only Four Seasons currently under construction in the U.S., though the chain is planning a hotel in Lower Manhattan.

“There isn’t a long list of places in North America where we’re actively pursuing a new Four Seasons hotel,” said Scott Woroch, executive vice president of worldwide development at Toronto-based Four Seasons. “We’re already in most major markets in the U.S. Orlando was probably at the top of that list of destinations in the U.S. where we want to be represented and feel it could support a Four Seasons.”

The only other Four Seasons under construction in North America are in Toronto, where the new property will replace an aging Four Seasons, and on the Caribbean island of Barbados. Otherwise, 13 Four Seasons are planned in Asia, six in Europe, five in the Middle East and two in Africa.

Other Western hotel brands are seeing a similar shift abroad. At Starwood Hotels & Resorts Worldwide Inc., 88% of Starwood-branded hotel rooms under development are outside of the U.S.

In Orlando, the Four Seasons will anchor Walt Disney Co.’s 980-acre Golden Oak luxury resort community adjacent on the site of the former Eagle Pines golf course and near Disney’s theme parks. Disney envisions 450 homes at Golden Oak ranging from $1.5 million to several million dollars apiece. The project also calls for an overhaul of the adjacent Osprey Ridge golf course designed by Tom Fazio.

A year after Disney started marketing Golden Oak lots, 22 homes are under construction there. They reflect the neighborhood’s design standards of Mediterranean-tile roofs, thick wooden doors, exteriors of Tuscan stonework and elaborate swimming pools. Buyers at Golden Oak also get three-year passes to any Disney park.

The Four Seasons at the site is being developed at an estimated cost of $360 million by a partnership of New York developer Silverstein Properties Inc., Four Seasons and Dune Capital Management LP. The 17-story hotel will include a rooftop restaurant, a 14,000-square-foot spa, three pools, a “lazy river” water ride and meeting space, among other amenities. The Orlando hotel, slated to open in 2014, is Four Seasons’ third hotel in Florida after Miami and Palm Beach.

“This Four Seasons has everything that you’d find (at resorts) down here,” Silverstein executive Glenn Fidje said at the Orlando construction site. “But the level of quality will be a step beyond.”

Susan Marvin, president of Marvin Windows and Doors, a small, privately held family company based in Warroad, Minn., wants to believe that the housing market is improving, but the numbers say otherwise.

Housing starts and permits are at or near all-time lows. So are new-home sales. Existing-home sales, while improving, remain at near-historic lows. These are the reasons why Ms. Marvin’s company projects that 2012 will be a flat year for the window business, no better than last year.

“I don’t see one metric that suggests we’re at the beginning of a recovery. I see all the facts, and I go, ‘This all adds up to a very bad year,” for 2012, she said Thursday over coffee at the NAHB’s International Builders Show in Orlando.

Marvin’s glum projections are in line with much of the housing industry at large, but in a way are more troubling because they show that even companies that focus on remodeling have a negative outlook. That’s disheartening because recent estimates show that while new-home sales and starts hit record lows in 2011, dollars spent on remodeling are rising for the first time since 2006.

Still, despite the boost in renovation work, and some signs of uptick from the dealer and distributor communities, Marvin is predicting little to no growth in revenues for 2012. Best case scenario, Ms. Marvin says, the company’s orders will rise 5%, but even that is unlikely.

“Dealers who last year sold two house packages might sell four this year, but it needs to get back to 12. We’re still so far from the housing industry of five years ago,” she says.

The company was started in 1904 by Ms. Marvin’s grandfather, and was originally a lumber yard. At the outset of World War II, the family decided to expand to window production as a way of diversifying and ensuring jobs for the family when they returned from military service. Today, more than 2,000 people work in the company’s flagship factory in Warroad (more than the town’s population of 1,700) and Marvin operates 10 factories in the U.S., mostly in the Midwest.

During a typical year, about half of Marvin’s residential business is from new construction, and half is from repair and renovation work. But that balance shifted starting in 2009. Now Marvin makes three-fourths of its residential real-estate revenues from repairs and renovation, and only a quarter from new construction.

The window business is highly cyclical, and depends heavily on both new construction of homes and on the availability of consumer credit for homeowners to remodel their houses. For Marvin, sales pick up in April, when a lot of new homes begin construction.

But the housing crash hit suppliers like Marvin hard. Unit orders are down by more than 20% from their peak about five years ago, Ms. Marvin says. As a private company, Marvin does not reveal sales figures or revenues, but trade publications have estimated the company’s annual revenues at between $500 million and $1 billion, a range that Marvin confirms is accurate.

Since 2009, the window maker has shifted from a 40-hour work week to 32 at many of its plants, cut executive pay and 401(k) contributions, but has not laid off any of its 4,300 workers, Ms. Marvin says. Even so, Ms. Marvin isn’t holding out too much hope for 2012.

“We’re not talking about a housing recovery,” she says. “We’re talking about a small pickup.”

Robbie Whelan/The Wall Street Journal

Architect Michael Woodley in a ‘Gen-Y’ house in Orlando.

They say in tough economic times, we rely more on our friends and family for support. That concept, it seems, has made its way into new home design.

Each year at the National Association of Home Builders’ IBS convention, thousands of companies display their wares and try to market new products to consumers and builders. They also build a few new homes.

There’s always the NAHB’s “New American Home,” a high-end model meant to reflect the changing trends in American residential construction. And since 1998, IBS has partnered with Builder magazine, a trade publication, to support the construction of the Builder Concept Home, which essentially serves the same purpose: to highlight new trends and show off the latest in new-home design.

Last year, national builder KB Home unveiled its Martha Stewart-branded “green” designs, which featured big energy savings and features like an electric car-charging station in the garage. This year, Centerline Homes, a large Florida builder, built three homes, on a horseshoe-shaped cul-de-sac in Orlando: one for Generation X, one for Generation Y, one for the Baby Boomers.

The three homes are different in size and style, but they have one thing in common: an emphasis on social and family time, entertaining and interaction. In addition, the homes are smaller than the McMansions of years past, further proof that builders are “right-sizing” homes, or making them smaller and cozier, partly to keep prices down during a tough economy.

The idea that buyers of different ages want different things out of a home is not new: last year at this same convention, in fact, it was a hot topic. But this year, we see it in practice.

One of the most distinctive features of the homes is their use of outdoor common space.

The entryway of the “boomer” house, for example, opens up onto a hard-floored patio with an outdoor staircase leading to the second level and a decorative fountain. The Gen-Y house, intended for families with fairly young children, has a triangle-shaped outdoor living space with a basketball hoop and space for kids to run around. Out back, architect Michael Woodley has extended the home’s column supports out past the sun doors of the living room, so that they cover a large outdoor patio with furniture and a barbecue grill.

All three concept homes, in fact, feature some kind of multi-purpose room that incorporates cooking, eating and socializing, without walling off any one of those functions.

This also speaks to another trend that has become popular among builders: multigenerational housing. Many builders have accepted, at this point, that for both cultural and economic reasons, families are nowadays living with grandmothers, in-laws and grown children who have not yet gone out on their own and started their own households. The Gen-Y home features what Mr. Woodley called an “unemployed brother’s room,” — a semi-private wing of the home off to the side of the main area with a bedroom and bathroom that serves as a funny, if depressing, sign of the times.

Builders are designing homes based on consumer demand, which is highly influenced by the state of the economy, according to David Berson, chief economist of mortgage insurer PMI Group. “I think builders are responding to what’s going on now,” he said at an educational workshop on Wednesday, before adding that he thinks multi-generational housing is a short-lived trend.

Other features of the concept homes included “drop areas” in the Gen-X homes, where parents can drop their keys or charge a cell phone; laundry rooms that double as pet areas; large home office spaces; kitchen stoves that face out into the common area so that cooking can be a more social experience; and smaller master bedrooms.

WRAL

Construction recently at the two-story Chick-fil-A restaurant in Raleigh, N.C.

What’s better than a new Chick-fil-A restauraunt? A double-decker eatery devoted to the chicken chain.

The world’s first two-story Chick-fil-A location is expected to open next month in Raleigh, N.C., according to local television station WRAL.

Chick-fil-A has long been known for its mall locations. But it began branching out with stand-alone restaurants and drive-thru locations to boost business. Last year, the company’s sales topped $4 billion, up 13% from the previous year.

This Tar Heel eatery will be located in Cameron Village, a 63-year-old shopping center that’s a big part of the local fabric in the city of Oaks. (Disclosure: This Developments blogger used to live within walking distance of the center.) The restaurant will feature a Vittleveyer, described as a fancy version of a dumb waiter that will zip food from the first floor to upstairs customers, WRAL reports.

Two-story restaurants are hardy new, but Chick-fil-A is known for its devoted followers – it has nearly 5 million likes on Facebook – and some camp out for the “First 100” program that offers free food for a year when a restaurant opens.

Football Linebacker Cassanova McKinzy recently grabbed headlines when he cited Chick-fil-A as a factor in picking Auburn University over Clemson. “(It was) kind of the environment and plus they had no Chick-fil-A on campus,” Mr. McKinzy is quoted as saying. “You had to go like, probably like 15 minutes off campus to go to like a real restaurant. Their café was kind of small.” (We should point out that Clemson appears to have one as well.)

Corrections & Amplifications: An earlier version of this post incorrectly referred to the company’s sales for last year.

Follow Dawn @dwotapka

Zillow

Click for interactive

It will be a year of not-as-bad numbers for home values.

Zillow’s home-value forecast released on Thursday predicts a drop of 3.7% this year, which only looks like an improvement when measured against the 4.7% drop in 2011. Some markets hammered by the housing bust, such as Phoenix, Los Angeles and Riverside, Calif., should bottom out for home values in 2012, according to Zillow, and might even see a slight increase in values.

But other markets, particularly Atlanta, Chicago, and Seattle, are projected to show significant further home-value declines on a year-over-year basis in December 2012. The forecast from the real-estate company covers the top 25 metro markets.

Zillow has compiled these interactive charts to show how the outlook breaks down by market. Of course, a forecast is just that, and unforeseen factors could change the housing market’s course.

While prices will drop, total home sales are expected to continue to pick up this year amid affordable prices and low mortgage rates, factors that draw in second-home buyers and investors. It also seems that, as we have written, a shrinking inventory of homes for sale might prove to be an advantage for sellers.

But finding bright spots in this housing market can seem like a futile effort since values have fallen, nationally, 24.2% from the peak and foreclosures remain a huge obstacle blocking any potential rebound. CoreLogic reported Wednesday that, in December, 1.4 million homes, or 3.4% of all homes with a mortgage, were in the foreclosure inventory.

View Zillow’s forecast.

The foreclosure mess and multibillion-dollar settlement unfolded over a year of tussles among banks, federal officials and attorneys general. Here are some of the key dates:

June 2010

- Ally Financial Inc. employee Jeffrey Stephan says in a sworn deposition that he signed hundreds of foreclosure documents daily without reviewing them as required.

September

– Ally Financial suspends some foreclosure sales and evictions to review its practices.

- J.P. Morgan Chase & Co. suspends foreclosures in 23 states with court oversight of the foreclosure process.

October

– Bank of America  suspends foreclosures and foreclosure sales nationally to check its practices.

- Bank regulators and attorneys general begin probes into the alleged abuses.

January 2011

– Iowa Attorney General Tom Miller says the probe will likely end in separate settlements with individual banks, not a “one size fits all” agreement.

February

– A review by U.S. regulators finds “critical deficiencies and shortcomings” in document-handling procedures and a “small number” of wrongful sales that shouldn’t have occurred.

- Obama administration prepares a proposal for a $20 billion settlement, payable in civil fines or by funding a comparable amount of loan modifications for distressed borrowers.

March

– Official face-to-face talks begin.

- Banks receive a 27-page term sheet from states and federal agencies that tightly regulates the way they treat struggling homeowners.

April

– Federal regulators send orders to 14 financial institutions requiring improvements in foreclosure practices.

May

– Banks offer to pay $5 billion as compensation for any borrowers wronged in the foreclosure process, angering state officials who want more than $20 billion.

- Attorneys general respond with a warning that banks face a potential liability of at least $17 billion in civil lawsuits if a settlement isn’t reached.

- New York Attorney General Eric Schneiderman expresses concerns that a broad settlement could allow banks to escape liability for future legal claims.

June

– Talks drag past a mid-June target set by U.S. officials.

July

– U.S. banks squabble over how to split the settlement tab and push for broad protections from further legal claims.

- Massachusetts Attorney General Martha Coakley says she won’t sign any agreement releasing banks from future legal claims on the packaging of loans into mortgage securities.

August

– Mr. Scheiderman is removed from a committee overseeing the settlement talks amid a dispute over the extent to which banks should be released from future legal claims.

October

– California Attorney General Kamala Harris pulls out of the settlement talks, calling the proposed deal “inadequate for California homeowners.”

- A week later, Ms. Harris says her support might be possible if the deal if it involved a “stronger proposal” from lenders. – Ms. Coakley says she “lost confidence” in any proposal that would hold banks “accountable for wrongful foreclosures.”

- Attorneys general in Arizona and Delaware also express reservations about a potential deal.

November

– The price tag of the settlement rises to $25 billion if California were to sign, and $19 billion without it.

January 2012

- Housing and Urban Development Secretary Shaun Donovan and U.S. Department of Justice Associate Attorney General Thomas Perrelli brief Democratic attorneys general at a Chicago hotel on details of a tentative agreement.

- President Obama appoints New York’s attorney general as head of a new mortgage task force, but California’s attorney general says she is still opposed to the deal as written.

February

– Negotiators set a deadline of Feb. 3 for state attorneys general to decide whether they are in or out of the final settlement.

- The deadline is pushed back to Feb. 6.

- On Feb. 9, government officials finalize an agreement worth as much as $26 billion with Ally Financial, Bank of America, Citigroup, J.P. Morgan Chase and Wells Fargo.

**

Related Reading:

• Banks, States Reach Accord
• A Glimpse at Four Key Players in the Settlement
• Foreclosure Deal Gets Closer (02/06/2012)

One of the best-attended educational sessions at the International Builders’ Show is the economic outlook talk hosted by the NAHB’s chief economist, David Crowe. This year, he was joined by Freddie Mac Chief Economist Frank Nothaft and David Berson, chief economist with mortgage insurer PMI Group, to discuss their predictions for the economy, and the tone was what one might call penitent optimism.

Why penitent? Because last year, Mr. Crowe called the bottom of the new-home market, and he was off in a big way. For 2011, Mr. Crowe predicted that single-family housing starts would tick up to 575,000 and new-home sales would rise to 405,000. Instead, both of those figures fell to all-time lows, with builders starting only 428,600 new single-family homes, and sales clocking in at a dismal 302,000, according to the Commerce Department.

This year, the trio of economists sounded a more cautious tone. Mr. Crowe predicted a 16% improvement in 2012 for both new-home sales and single-family starts. Moreover, they were able to point to improvements in several economic indicators: GDP growth, unemployment rate, private-sector job-creation, and consumer sentiment. One issue they all agreed upon is that household formation has got to go up in order for the new-home market to improve, and that’s likely to happen in the next year.

“Of course, as we know, the real savior of housing is demographics,” Mr. Crowe said, citing a pent-up demand for 2 million homes by households that are doubled-up or waiting to buy a home, according to NAHB estimates. Those potential homebuyers or renters “are in mom’s basement, and let me tell you, that’s not a sustainable lifestyle, not for mom, and not for them.”

Mr. Nothaft, of government-sponsored mortgage giant Freddie Mac, started his talk by pointing out the high level of affordability that exists today. Forecasting that mortgage rates will rise to just over 5% by the end of 2013, he expressed sympathy with the frustrations felt by the builder community.

“If I put this affordability into a model, I would have home sales through the roof! But as we know, they’re not through the the roof,” he said. The reason is serious “headwinds” facing the industry, including sapped consumer confidence, more than 400,000 excess unsold homes at the end of 2011, and a still-high jobless rate. The good news, though, is that “in the first half of 2012 we’ll see a lot of the [unsold] inventory bottom out.” Another year, another bottom called.

Mr. Berson, of PMI Group, also focused on household formation as a key number to watch in 2012. He predicted an average of about 1.1 to 1.2 million housing starts per year over the next 10 years — which would be close to what economists consider a “healthy” level of construction — minimal growth in second and vacation homes, and a strong household growth in the South, Great Plains and Rocky Mountain states. He cited numbers showing that between 2007 and 2011, the number of households that are “doubled up,” or have grown children or other potential household heads living with their relatives in the same house, grew from 20 million to 22 million. About 6 million of these housemates are young adults aged 25-34 living with their parents.

“They don’t want to live with you. You don’t really want them living with you,” Mr. Berson told the mostly middle aged and older audience. “They will move out as fast as they can. Unless you make it easy for them [to stay]. Don’t make it easy for them. Help your other home builders kick them out.”

One way builders have been trying to do that is by “right-sizing” their homes, or building smaller, more efficient dwellings that are more appealing the supposedly more urban-minded and environmentally conscious young buyers, who are referred to as “Generation Y” or the “echo boomers.” In fact, many of educational sessions at this year’s IBS show are devoted to how to design homes that are more appealing to Gen-Y buyers.

Another common trend in new home design that is the focus of this year’s show is multi-generational housings, or building homes that have separate rooms or wings for grandparents, in-laws, and recent college grads in search of a crash pad, a design trend that seems to run counter to builders’ goal of selling as many new homes as possible to as many new households as possible.

But Mr. Berson argued that multi-generational housing is short-lived as a trend. “In three or four years there will be a lot less emphasis on multigenerational housing.”

The disclosure Wednesday is the latest twist in an effort by congressional Democrats to prod Fannie and sibling government-controlled mortgage finance company Freddie Mac to provide principal write-downs to homeowners who owe more on their homes than their properties are worth.

An internal dispute over this issue at Fannie was disclosed in a letter by Rep. Elijah Cummings (D., Md.) to the Federal Housing Finance Agency, which regulates Fannie and Freddie Mac. Mr. Cummings is the top Democrat on the House Oversight Committee.

Fannie Mae declined to comment. An FHFA spokesperson said: “FHFA stands by its analysis of principal forgiveness. We will soon respond to the Congressmen’s letter.”

Last year, Mr. Cummings requested that FHFA’s acting director, Edward DeMarco, provide a detailed financial analysis of principal write-downs and their impact on Fannie and Freddie. After the housing regulator did so last month, Mr. Cummings said his office was contacted by a former Fannie Mae employee involved in a pilot program that Fannie considered around two years ago.

The employee, whose name was not revealed, told Mr. Cummings’s staff that Fannie Mae worked on a principal write-down pilot program for several months before it was canceled two weeks before its launch in 2010. The program was canceled by Fannie Mae executives who were “philosophically opposed to writing down principal balances,” the former Fannie Mae employee is reported to have told Mr. Cummings’s staff.

The proposal received internal legal and accounting approvals as well as a thorough analysis from officials at FHFA and the Office of the Comptroller of the Currency, a key banking regulator, the former official asserted. The company’s analysis concluded that “the program would minimize losses for Fannie Mae versus conventional loss mitigation practices,” the former employee told Mr. Cummings’s staff.

Fannie and Freddie have been propped up since September 2008 with regular infusions of money from the Treasury Department, a rescue that has cost taxpayers $151 billion to date.

Despite pressure from the Obama administration, Democrats on Capitol Hill and top Federal Reserve officials, Mr. DeMarco has long insisted that principal write-downs would violate his primary mandate of protecting assets of Fannie Mae and Freddie Mac.

“Any money spent on this endeavor would ultimately come from taxpayers,” Mr. DeMarco wrote last month to lawmakers. “Given that our analysis does not indicate a preservation of assets for Fannie Mae and Freddie Mac substantial enough to offset costs, an expenditure of this nature at this time would, in my judgment, require congressional action.”

The FHFA provided lawmakers with an analysis of how such a program would impact Fannie and Freddie. In the letter, which has been criticized by a former Obama administration official, the regulator indicated its preference for a principal forbearance plan, which does not require lenders to forgive debt.

Mr. Cummings also criticized Mr. DeMarco for arguing that a write-down for all three million borrowers with loans backed by Fannie and Freddie owed more on their homes than their properties were worth as of last summer would cost taxpayers $100 billion.

Mr. Cummings called that statement “a highly inflammatory assertion” that overstates the impact on taxpayers. “To the contrary, your own data show that principal reduction programs would save taxpayers billions of dollars,” Mr. Cummings wrote.