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DeMarco Punts on Principal Reduction

It appears increasingly unlikely there will be help for homeowners under DeMarco’s leadership.

George Zornick

May 2, 2012

Three weeks ago, acting director of the Federal Housing Finance Agency Edward DeMarco appeared to show some willingness to have Fannie Mae and Freddie Mac, the government-sponsored lending institutions he oversees, issue some principal reductions. In a speech at the Brookings Institute, DeMarco engaged in a lengthy analysis of principal reductions, and while the scope of his analysis was narrow—affecting under a million homeowners—he said FHFA “might” consider reductions and that he’d have an answer by the end of April.

Yesterday, the answer came: there will be no decision. At least not anytime soon. “FHFA continues to work on its principal forgiveness analysis and is in discussions with the Department of the Treasury,” an FHFA spokeswoman said. “A final determination…is being deferred until we conclude these activities.”

DeMarco’s delay prompted an immediate, angry response from House Democrats who have long criticized him refusing to issue write-downs. Representatives Elijah Cummings and John Tierney, both members of the House Committee on Oversight and Government Reform, sent DeMarco a letter in which they openly questioned whether DeMarco was blocking write-downs for ideological reasons.

The two Democrats disclosed that they obtained internal FHFA documents showing that agency analysts performed studies showing a principal reduction program would save hundreds of millions of taxpayer dollars, contrary to DeMarco’s claims—and most damningly, that DeMarco failed to release these documents to the committee earlier this year when it requested information on principal reduction considerations inside the agency:

Despite the clear conclusion reached by Fannie Mae officials that principal reduction would reduce losses to the taxpayer, this pilot program was prevented from ever getting off the ground. It remains unclear why you failed to mention this in your testimony and why you failed to disclose this principal reduction program to the Committee. […]

This was not merely a missed opportunity, but a conscious choice that appears to have been based on ideology rather than Fannie Mae’s own data and analyses. The documents make clear that Fannie Mae officials concluded as far back as 2009 that principal reduction programs had enormous potential to save the U.S. taxpayers significant sums of money, even when compared to other types of modifications, such as forbearance.

If DeMarco is indeed hiding information about beneficial aspects of principal reductions from Congress, it’s yet another argument for firing him—something that many Democrats have already been advocating.

DeMarco’s response to those charges, which came late yesterday, isn’t likely to help his case much. “I strongly disagree with any characterization of FHFA’s work or motives as anything but in keeping with the professionalism expected of this agency,” he said. He pointed to one letter in which he did reference the principal reduction analysis—but not, as the Huffington Post notes, anything about the key determination made that the program would save large amounts of money for taxpayers.

George ZornickTwitterGeorge Zornick is The Nation's former Washington editor.


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