Op-Ed: Housing Agency Needs New Leader
Op-Ed Published in Politico
By Eric T. Schneiderman and Martha Coakley
Last week, we joined seven other state attorneys generals in calling on President Barack Obama to replace Edward DeMarco, the acting director of the Federal Housing Finance Agency, which oversees Fannie Mae and Freddie Mac. We don’t have anything against DeMarco personally, but we believe that he is standing in the way of progress toward a full economic recovery and hurting families across the country. It is time for new leadership and a new direction at Fannie and Freddie.
Millions of households are still drowning in mortgage debt — a legacy of the collapsed housing bubble. In the fourth quarter of 2012, 10.4 million properties — 21.5 percent of all homes with mortgages — had negative equity or “underwater mortgages,” meaning that borrowers owed more on their mortgages than the properties were worth.
Underwater homeowners are more likely to wind up in foreclosure. Even if they avoid foreclosure, they are saving every penny to try to pay down their debt. They can’t spend at local businesses. They can’t move for a better job or invest in starting a small business. They are trapped under America’s $628 billion mountain of negative equity. It is in everyone’s interest for lenders to work with distressed homeowners to reduce their debts and keep them in their homes.
Under DeMarco’s leadership, Fannie Mae and Freddie Mac have refused to allow principal write-downs for underwater mortgages. At a House Financial Services Committee hearing last week, DeMarco was questioned by Congress and confronted by protesters calling for mortgage principal reduction, but he again refused to change his position.
This failed policy is a direct impediment to our economic recovery and stands in the way of our efforts to provide much-needed assistance to homeowners across the country. While we have seen some encouraging economic indicators lately, it is clear that our economy is still struggling to rebound and the lingering housing crisis is a major reason.
Last year, we joined 47 other states in a national mortgage settlement with the five largest mortgage servicing banks that has delivered billions in relief to homeowners at risk of foreclosure, including more than $17 billion in mortgage principal reductions. We are working to get more relief from lenders in the private sector, but these efforts are undercut by DeMarco’s refusal to cooperate. The reality is that more than half of all mortgages in America are owned or guaranteed by Fannie Mae or Freddie Mac.
The homeowners carrying their loans deserve the same help private mortgage servicers have begun to provide.
Mortgage modification, including significant principal reduction for underwater mortgages, can actually increase the lifetime value of a mortgage by reducing the likelihood of default. It is far more profitable for any financial institution to hold a portfolio of performing $200,000 mortgages that keep families in their homes than a portfolio of nonperforming $250,000 mortgages headed toward default.
Recognizing the potential benefits that could flow to Fannie and Freddie from writing down underwater mortgages, as well as the potential benefit to the economy from averting millions of foreclosures, the Obama administration offered to pay FHFA up to 63 cents for every dollar of debt forgiven on underwater mortgages owned by Fannie and Freddie. DeMarco refused.
Contrary to the findings of his own agency, DeMarco argued that principal reductions would weaken the finances of FHFA and produce a financial loser for taxpayers. These are two separate questions, only one of which is DeMarco’s responsibility. He is responsible for the fiscal health of his agency. FHFA estimated that it would come out ahead by $3.7 billion from the administration’s plan because of the aid from the Treasury Department. It’s likely that taxpayers as a whole will come out ahead as well. But even if they don’t, if the administration opts to use public resources to support a policy that prevents foreclosures, stimulates the economy and creates jobs, it’s not the place of an acting agency head to stand in the way.
The president can unlock the door for his own very sensible policy, and potentially open doors for millions of job-seekers as well, by appointing a new director at FHFA. For Americans who are fed up with Washington obstructionists holding back help for the middle class, this is one obstruction the president should be eager to remove.