Op-Ed: Obama's Underwater Rescue
Op-Ed Published in the New York Daily News
By Eric T. Schneiderman
President Obama has finally moved to replace a little-known but powerful Washington bureaucrat who has stood in the way of important efforts to end America’s foreclosure crisis. The President’s decision is welcome — but further action is needed, right away, to provide the swift and fair relief homeowners need.
Since 2009, Edward DeMarco has served as acting director of the Federal Housing Finance Agency, which oversees Fannie Mae and Freddie Mac. He should have been a critical figure in setting policy to get us out of the foreclosure crisis. Instead, DeMarco’s most notable achievement has been blocking programs to help struggling homeowners.
It has been more than five years since the housing bubble burst, but millions of Americans are still fighting to keep their homes. In the fourth quarter of 2012, 10.4 million properties — 21.5% of all homes with mortgages — had “negative equity,” owing more on their mortgages than their properties were worth. Right now, these homeowners are trapped under a $628 billion mountain of negative equity.
Banks move to foreclose on 250,000 properties each quarter. That’s 2,700 families each day moving one step closer to losing their homes.
Of course, foreclosure is a terrible event in the life of a family. But it isn’t so great for the folks who own the loans, either. It often takes long, expensive legal proceedings to reach resolution, with the prize being a property worth much less than the bank is owed.
In many cases, however, foreclosures can be avoided by simply reducing the amount that homeowners owe. Very modest reductions can often enable families to keep their homes and continue to pay off their loans.
Such “principal writedowns” are a necessary and common-sense tool in the massive repair job that is needed to mend our broken housing market.
But when the White House proposed expanding principal writedowns for Fannie and Freddie-owned mortgages, DeMarco killed the initiative. His obstruction came at great cost to millions of homeowners and to the housing market, generally: According to the Congressional Budget Office, approximately 1.2 million homeowners with Fannie and Freddie mortgages are in need of principal reduction. That’s roughly 40% of all underwater homeowners in the United States.
So why is this man, who was appointed as a Federal Housing Finance Agency deputy director by President George W. Bush, still wielding so much power as head of this important agency?
The answer, like so much of Washington’s dysfunction these days, lies in Congress. Two years ago, Senate Republicans made it clear they would block the confirmation of a new, permanent head of the agency in order to preserve DeMarco’s power and policies.
President Obama’s nomination last week of Rep. Mel Watt as permanent director signals that he’s ready for a confirmation fight that should result in better housing policy. But the outcome of that fight is far from certain. And even if the President succeeds, how long will it take, and how many more homeowners will lose their homes, before Watt takes office?
There is a quicker way to get rid of DeMarco now, and pave the way for a new policy direction for the Federal Housing Finance Agency. He can be replaced as acting director by one of the agency’s three deputy directors — today.
The Congressional Budget Office estimates that without a policy change to provide principal reduction for Fannie and Freddie mortgages, an additional 600,000 homeowners will go into default over the next two years.
With a new acting director, the agency can quickly move to stanch the bleeding and bring relief to struggling homeowners. Meanwhile, Senate Republicans would no longer have reason to hold up Watt’s nomination. The President will have taken their leverage away and ensured responsible leadership for the agency.
Last year, I joined 48 other state attorneys general in a national settlement with the five largest private mortgage servicing banks, delivering billions in relief to homeowners at risk of foreclosure by those banks, including billions in mortgage principal reductions.
The 60% of American homeowners who carry loans serviced by Fannie Mae and Freddie Mac need and deserve the same kind of relief. Obama can deliver for these families by removing DeMarco, right now.