By Phil LeBeau, CNBC Correspondent NEW YORK ( CNBC) -- Despite strong pressure from the Obama administration, a federal regulator will not allow Fannie Mae and Freddie Mac to reduce mortgage principal. The Federal Housing Finance Agency's Ed DeMarco has previously opposed the program, which uses taxpayer money to pay lenders to reduce loan balances of severely troubled borrowers, but had not made the final decision until now. "After much study, I have concluded that Fannie Mae and Freddie Mac's adoption of HAMP PRA
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The FHFA estimates that up to 500,000 Fannie and Freddie borrowers could have been eligible for principal reduction. The Treasury's current program pays lenders large incentives to write down loan balances, using unspent money from the $700 billion TARP (Troubled Asset Relief Program). But FHFA says despite a positive financial benefit to Fannie and Freddie, it is really just a transfer of taxpayer funds, adding "to the over $188 billion in taxpayer support the Enterprises have already received." Some lawmakers, however, may not be done fighting yet. Several have been pushing for more action to help homeowners, and the heat is on with the election less than 100 days away. "It is incomprehensible that Mr. DeMarco would reject the chance to save up to a billion dollars in taxpayer funds while helping nearly half a million homeowners stay in their homes," said Rep. Elijah Cummings (D-MD) in a statement. "He should immediately withdraw this reckless and misguided letter and start following the law Congress passed." --Written by Diana Olick at CNBC