JoAnn Henderson bought her house New Carrollton, Maryland, in 2001. She refinanced a few years later for a higher amount. Shortly before she retired from her teaching job, she started having trouble with the steep payments.

“You would miss a couple and then you’d pay and pay and pay,” she says. “And then you’d miss a couple more. Yeah — I almost lost the house.”

Henderson got a loan modification, which dropped her interest rate to 3 percent. Now she’s even got a rainy day fund.

“A tiny one,” she says, laughing. “Not a big rain. A small rain.”

What would really help Henderson is if the amount of her loan could be reduced in what’s called a principal reduction. Henderson owes more than $450,000 on her house, which is only worth $212,000, according to Zillow. She’s underwater, owing more on her home than it’s worth.

“It seems like principal reduction is a logical, no-brainer conclusion,” says Mitria Wilson, vice president of government affairs at the Center for Responsible Lending. 

Wilson says the improving housing market has cut the number of underwater homeowners from 15 million to 4 million.

“So, the number’s gone down significantly, but here’s the rub,” she says. “The people who make up that 4 million disproportionately have lower-priced homes.”

That aren’t likely to appreciate. So those homeowners will stay underwater.

Mel Watt will be making the decision on principal reduction. He’s head of the Federal Housing Finance Agency, which oversees Fannie Mae and Freddie Mac. They guarantee many U.S. mortgages.

Watt is caught between homeowner advocates like Wilson, and people like Tim Rood, chairman of the Collingwood Group of financial advisers. Rood wonders where the money for principal reduction would come from.

“This money doesn’t come out of thin air,” he says. “So, it’s going to have to come from investors or from taxpayers.”

In congressional testimony, Mel Watt has said he’s looking at ways to help borrowers, without hurting Fannie and Freddie.