House Democrats Urge President to Permanently Replace FHFA's DeMarco

Forty-five Democratic members of thernHouse of Representatives have sent a letter to President Obama urging him tornappoint a permanent director to head the Federal Housing Finance Agency (FHFA).  Edward J. DeMarco has been acting director ofrnthe agency since James Lockhart resigned in August 2009.  The Senate failed to bring the name of JosephrnSmith, named by the President to replace Lockhart, to the floor forrnconfirmation. </p

The group signing the letter was led byrnElijah Cummings (D-MD), Ranking Member of the HousernCommittee on Oversight and Government Reform, and Committee Member John F.rnTierney (D-MA).  Cummings has tangledrnrepeatedly with DeMarco over whether Fannie Mae and Freddie Mac (the GSEs)rnshould participate in the Treasury Department’s principal reduction program forrndistressed and underwater homeowners.</p

The letter noted that it hadrnbeen three and a half years since Smith’s nomination was blocked and suggestedrnthe President’s recent reelection “is a prime opportunity to put forth arnnew candidate who is ready and willing to implement all of Congress’ directivesrnto meet the critical challenges still facing our nation’s housing financernmarkets.”</p

While the hiring sector is recovering,rnas of last month there were approximately 10.9 million borrowers who werernseriously underwater.  “It is imperative,”rnthe House members said “that we have a strong leader at FHFA to take on thesernchallenges, strengthen the housing market, and promote our nation’s continuedrneconomic recovery.”</p

FHFA is the conservator of the GSEs underrnthe Emergency Economic Stabilization Act of 2008, was directed to “maximizernassistance for homeowners,” “to minimize foreclosures,” and was explicitly grantedrnauthority to modify mortgage loans through the “reduction of loan principal.”  According to the writers, DeMarco hasrndeclined to fully and effectively implement these laws and testified tornCongress “that the ‘use of a principal reduction within the context of a loanrnmodification is not going to be the least-cost approach by the taxpayer tornallow this homeowner an opportunity to stay in their home.’  His testimony has since been contradicted byrnFHFA’s own data, which indicate that principal reduction loan modificationsrncould save U.S. taxpayers billions of dollars compared to allowing underwaterrnhomes to go into foreclosure, and that principal reduction loan modificationsrncould save taxpayers hundreds of millions of dollars compared to Mr. DeMarco’srnpreferred alternative of principal forbearance.”</p

The letter says he has also refused to allow the implementation of a pilotrnprogram to the cost effectiveness of a principalrnreduction program and terminated one developed by Fannie Mae and Citibank.  By not supporting this pilot program-evenrnafter the Department of Treasury offered funds to “help cover its operationalrnexpenses-Mr. DeMarco demonstrated that he is not interested in obtainingrnreal-world evidence that might contradict his pre-established views.”</p

Finally, the letter says, “rather than taking steps to help homeownersrnfacing foreclosure, FHFA recently proposed an action that appears to penalizernborrowers arbitrarily by proposing the increase of state-level guarantee feesrncharged by the GSEs on new borrowers in the five states with the longestrnaverage foreclosure timelines.”  Thernagency provided no analysis to support its recommendation which also fails to identifyrnor address specific factors that cause long foreclosure times, “such asrninadequate business practices by mortgage companies servicing loans underrnFHFA’s conservatorship.”</p

The letter concludes, “Ensuring that FHFA implements Congressionalrndirectives to support the most liquid, efficient, competitive, and resilientrnhousing finance markets is a matter of national urgency. For these reasons, wernstrongly urge you to nominate an FHFA Director who is ready to fulfill thisrnmission and address the many challenges still facing the nation’s housingrnfinance markets.”

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