Will DeMarco Hear The Drumbeat

Bill Scher

From progressive activists to mortgage bankers to Wall Street traders, the drumbeat is getting louder and louder for Federal Housing Finance Agency Acting Director Edward DeMarco to end his resistance and act to end the housing crisis by allowing principal to be reduced for struggling homeowners with Fannie Mae and Freddie Mac mortgages.

You may have already read at OurFuture.org about the push from the Congressional Progressive Caucus, urging DeMarco to act or be removed. It was backed up by the new America Underwater partnership between progressive grassroots groups Rebuild the Dream and the New Bottom Line.

And you may have seen our own online campaign to directly pressure DeMarco to act or leave.

But this goes beyond a progressive cause.

Mortgage Bankers Association CEO David Stevens last week lent his support for principal reductions, saying they would put “cash flow into the hands of families.” He joins other Wall Street voices such as famed hedge fund manager Greg Lippman, the world’s largest bond fund, Pimco and the mortgage analysts at Amherst Securities.

Further, DeMarco protestations are being scrutinized.

The Bloomberg News editorial board two weeks ago gently but firmly nudged DeMarco, saying: “DeMarco has so far rebuffed calls for principal reduction, saying it is difficult to do and violates his mandate to protect taxpayers against losses at Fannie and Freddie. Although his motives are commendable, we think he’s wrong. Fannie and Freddie can offer principal reductions in a cost-effective way that helps the companies minimize losses and may actually improve their financial condition down the road. The solution is a shared appreciation model, in which Fannie and Freddie agree to forgive a certain portion of a borrower’s debt in exchange for sharing in any future increase in the home’s value.”

The Los Angeles Times editorial board reminded DeMarco that the numbers from his own agency undercut his stance: “DeMarco told a Senate panel Tuesday that he prefers giving troubled borrowers a temporary reprieve from paying interest on a portion of their loans — also known as “principal forbearance” — because it would be less costly for Fannie, Freddie and the taxpayers who are bailing them out … [But] the agency’s number crunchers … concede, though, that other types of forgiveness result in smaller losses than forbearance, and that Fannie and Freddie could prevent more foreclosures if they were willing to reduce some borrowers’ debt.”

And two analysts at the Center for American Progress give DeMarco three reasons to reconsider his position, in the Atlantic last week: “…the Obama administration announced new incentives for Fannie and Freddie to write down principal through the Home Affordable Modification Program, or HAMP. For the first time Fannie, Freddie, and their servicers could get as much as 63 cents on every dollar written off … reams of economic evidence support principal reduction as the most effective way to stave off unnecessary foreclosure … [And] the private sector has shown that principal reduction is good business practice. About 15 percent of private loan modifications in the third quarter of 2011 involved some sort of principal reduction.”

Much of this commentary presumes the DeMarco is a reasonable man who might reconsider his position when presented with the evidence. Perhaps he is. But if he refuses to budge, there are plenty of Americans out there ready to push him out.

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