California asks Fannie, Freddie cut mortgage debt

WASHINGTON Nov 3 (Reuters) - The California attorney general on Thursday called on Fannie Mae (FNMA.OB) and Freddie Mac (FMCC.OB) to cut mortgage debt on the loans they own, a suggestion the government entities have long resisted.

"It has become clear to me that the only way to keep distressed California homeowners in their homes is through meaningful principal reduction," attorney general Kamala Harris said in a statement.

Harris faces pressure to extract a better deal for California homeowners in long-running multi-state talks to settle mortgage abuses by top banks.

The majority of underwater mortgages in the United States are owned by Fannie and Freddie, which the proposed settlement is not expected to include.

Harris said Fannie and Freddie's regulator, Edward DeMarco, should step down if he is unwilling to support principal reduction on the underwater mortgages it owns. (Reporting by Aruna Viswanatha)