Will DeMarco Hear The Drumbeat?


Posted on 13 March 2012

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By Bill Scher
Campaign for America's Future

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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Bill Scher is the online editor for Campaign for America's Future. Bill also blogs at LiberalOasis.com. He's also author of Wait! Don't Move To Canada!: A Stay-and-Fight Strategy to Win Back America, a contributor to The Huffington Post and Bloggingheads.tv, and a fellow of the Commonweal Institute.

Principal reduction is going to be a major political issue that may never be resolved, however, there are other options available for underwater homeowners. One is the RH Reward program which is, in essence, a principal reduction but doesn't require the mortgage to be rewritten and it is a private program, so no politics required. Only a few lenders are utilizing it at this time, but those that have are seeing positive results.

The other issue that needs to be addressed by our Government, is the practice by lenders of requiring underwater homeowners to default on their mortgage in order to qualify for a short sale. This causes these homeowners to be wrongly labeled as "strategic defaulters" and takes them out of the home buying market for up to three years.

I have created a petition to the US Government to stop this practice, you can get the details here: http://closewithpam.com/2012/03/13/we-the-people-petition-at-whitehouse-...

Please share this with your readers, we hope to meet the requirement for signatures in order to get this petition heard. Thank you!

You're absolutely correct. Strategic default does not encourage meaningful results or even deter the wrongful act from occurring. It actually "contributes" to a growing problems in real estate industry. It adds to the millions of unsold housing and to the millions of homes already foreclosed. It inflames the downward spiral of home prices and adds blight to many communities throughout this nation (if not the world).

It is a moral hazzard that should not be taken lightly. We are only talking about failing homeowners in this scenarios. What about the failing owners of commercial buildings (regardless of whether they are in a business of rental commercial properties , office condo sales, or retail leasing operations.?

The media has only given attention to the HOUSING debacle. We have not even begin to address the latter.