Senator Bob Corker, R-Tn., a member of the Senate Banking Committee, on Monday said the Obama administration’s proposal to write down principal on some underwater home mortgages at taxpayer expense is “terrible public policy” and means Tennesseans and other Americans who acted responsibly will be paying for the consequences of reckless housing practices in other states like California, Florida, Nevada and New York, where exotic mortgages and no down payment loans were most prevalent prior to the 2008 financial crisis.

Senator Corker plans to introduce legislation this week barring the federal government from using taxpayer dollars for principal reduction on home mortgages.

The Treasury and Housing and Urban Development departments proposed on Friday, an extension of the Home Affordable Modification Program that encourages Fannie Mae and Freddie Mac to forgive principal on some government-insured mortgages in which the borrower owes more than the home is worth. The Federal Housing Finance Agency, regulator of Fannie Mae and Freddie Mac, must approve the plan.

“The idea that federal tax dollars would be used to reduce the principal on some outstanding mortgages and perhaps even bailout investment properties and beach houses is terrible public policy and means that people who acted responsibly in Tennessee will be paying for the bad behavior of lenders and borrowers in places where reckless housing practices were most prevalent, something I find to be irresponsible,” Senator Corker said.

“While I hope the detailed version of the plan the administration lays out improves over what they announced last week, to ensure taxpayers are protected, I intend to introduce a bill this week that says if states like California or Florida want to reduce principal on mortgages in their states, they can do so themselves with state money, not with federal taxpayer dollars.”

FHFA acting Director Edward DeMarco responded to the new HAMP proposal in a statement saying the agency would follow its recent analysis that found “principal forgiveness did not provide benefits that were greater than principal forbearance as a loss mitigation tool.”

Mr. DeMarco has said previously principal reduction on underwater mortgages would violate his mandate to protect taxpayers and thus would require Congressional action.

In addition to the legislation being introduced this week, Senator Corker is also the author of a bill, the Residential Mortgage Market Privatization and Standardization Act, to responsibly unwind government-sponsored enterprises Fannie Mae and Freddie Mac and gradually end dependence on the government for housing finance.