House Financial Services Chairman Barney Frank urged four of the nation's top banks to adopt principal writedowns on second-lien mortgages to allow borrowers to keep their homes.

In a letter dated March 4, Frank said many investors in first-lien mortgages are willing to accept losses, but modifications are still being held up because second-lien holders are not budging.

"The problem of second-lien mortgages standing in the way of successful principal reduction modifications has reached a critical stage and requires immediate attention from your institutions," Frank said in the letter to chief executives from Bank of America Corp. [BAC], Citigroup Inc. [C], JPMorgan Chase & Co. [JPM] and Wells Fargo & Co. [WFC]

Frank said first-lien holders cannot write down principal until second-lien holders do as well. But, he added, second-lien holders have refused, because even though the liens "have no real economic value," accounting rules allow those holders to inflate their lien's worth.

The industry's efforts to work out troubled loans have "fallen far short of the need," Frank said.

"To save homes on a large scale, we must move past temporary modifications in interest rates or terms and focus on permanent principal reductions that result in truly sustainable mortgages," he wrote. "There is no more important priority for me in our efforts to restore stability to our mortgage market."

He told the banks he would work with them to remove legal obstacles that may prevent principal writedowns.

"The four organizations you lead are major participants in the second-lien market. Failure to modify these debts has become a major and unnecessary obstacle to thousands of Americans being able to stay in their homes," Frank wrote. "I urge you in the strongest possible terms to take immediate steps to write down these second mortgages and allow principal reduction modifications of the underlying first liens to take place."