Meet the Obscure Federal Regulator Who’s Not Helping Homeowners
by Cora Currier ProPublica
Answers to homeowners’ questions about the Independent Foreclosure Review.The administration’s website for the foreclosure prevention program. Provides an FAQ, homeowner examples, and other tools to see whether you might qualify for the program.A list of HUD-approved housing counseling agencies nationwide.Tips for homeowners from the Federal Trade Commission.These rules lay out how mortgage servicers are supposed to conduct the program.A finance and economics blog that provides news and metrics on the state of the housing market.
Last week, ProPublica and NPR raised questions about a risky investment strategy at Freddie Mac that would pay off if homeowners stayed trapped in expensive mortgages. It’s just the latest example in which the government-owned Freddie Mac and Fannie Mae have frustrated many by not putting homeowners first.
Fannie and Freddie are required to both help homeowners while also earning a profit so they can pay back the taxpayers who bailed them out. Here is our guide to the little-known federal regulator, Edward DeMarco, ultimately in charge of the two companies. You may never have heard of him, but as the Washington Post put it, he’s “the most powerful man in housing policy.”
In the summer of 2008, as part of a larger economic stimulus bill amid the subprime mortgage crisis, President George W. Bush created the Federal Housing Finance Authority, combining several agencies overseeing housing policy, and increasing regulation of government-sponsored enterprises like Fannie and Freddie. When the government bailed out Fannie and Freddie a few months later, the FHFA took charge of them.
DeMarco, a lifelong regulator, was named the acting head of the FHFA roughly a year after the bailout when his Bush-appointed predecessor stepped down. Obama nominated a consumer-friendly replacement for DeMarco in October 2010, but Republicans blocked him. (Republican opposition to Obama’s nominee for DeMarco’s successor stemmed in part from concerns that he would push banks and others too far to help homeowners, unfairly rewarding reckless borrowers.)
As head of the FHFA, DeMarco has a three-part mission: to promote the soundness of Fannie and Freddie, and to support affordable housing and a stable and liquid mortgage market (in other words, expand access to home ownership loans and make it easier to buy and sell mortgages).
The last two goals, though, can clash with the fact that under the terms of the bailout, DeMarco is the “conservator” of Freddie and Fannie, meaning he has to protect their finances for the benefit of their shareholders. (And the majority shareholder is of course now the federal government.) According to the Washington Post’s Brad Plumer and Ezra Klein, there is “a conflict tucked deep into DeMarco’s job description: The head of the FHFA is stuck between the narrow needs of Fannie and Freddie and the broader needs of the housing market.”
DeMarco has focused almost solely on that first goal, telling Congress many times that “as conservator, FHFA has a statutory responsibility to preserve and conserve the enterprises’ assets.” In plainer terms, he told NPR last week his role is to “make sure Fannie Mae and Freddie Mac undertake activities that don’t cause further losses for the American taxpayers.”
DeMarco has strongly asserted his independence, insisting that he is promoting needed fiscal discipline. (He did not respond to our latest requests for comment on his role at FHFA).
Clashes With Congress and Obama
Democrats and Obama administration officials have been frustrated with DeMarco, saying the FHFA’s narrow focus on Fannie and Freddie’s health has hurt the housing market as whole.
The Obama administration has repeatedly tried to push principal reduction — reducing the size of a borrower’s mortgage — as a way to help homeowners, especially those with homes worth less than their mortgages. But as we and others have reported, time and again, Fannie and Freddie wouldn’t participate: a crippling problem, since the two companies own or guarantee about half of the country’s mortgages.
Last month, the administration unveiled yet another plan to encourage principle reduction, but a former administration adviser called DeMarco “the boulder” in the way of making it happen.
DeMarco says principal reduction could cost taxpayers $100 billion. Some economists counter that while principal reductions might lead to a short-term hit for Fannie and Freddie, it would ultimately result in fewer underwater mortgages, fewer foreclosures, and a healthier housing market — all good things for Fannie and Freddie’s bottom line.
On another administration plan, to allow more borrowers to refinance at lower rates, DeMarco shifted somewhat toward the White House’s position. He agreed to lift some fees on refinancing and make it easier to qualify. Freddie Mac told ProPublica in a statement that they have helped more than 830,000 families refinance, but as we noted, critics say that the refinancing effort could be helping millions more.
As DeMarco told Politico, he’s been no “particular friend” to the banks. He brought a massive lawsuit against 17 banks, alleging fraud over $200 billion in toxic mortgages sold to Fannie and Freddie. The case is ongoing.
DeMarco is also charged with helping Fannie and Freddie go gently into the night. As part of their bailout, the two companies are supposed to wind down their operations. And just as DeMarco has resisted Democrats’ calls for more aggressive help for homeowners, he’s also pushed back against Republican calls to spin off the companies more quickly. He’s also rejected GOP plans to cap executive pay at Fannie and Freddie.
Why He’s Still There
Last week DeMarco described his job as a “balancing act.” It’s also certainly thankless. While Democrats have called for DeMarco’s head, the FHFA is an independent agency, meaning the Obama administration can’t just get rid of him over policy disputes, like his stance on refinancing or principle reduction. He could also be replaced if Obama decides to offer another nominee and the Senate confirms the choice. Barring that, DeMarco is likely there for some time to come, walking his own line on Fannie and Freddie’s contradictory mission.