Nine Attorneys General Demand DeMarco Ouster

Nine state attorneys general have sent arnletter to President Obama, Senate Majority Leader Harry Reid and SenaternMinority Leader Mitch McConnell demanding new leadership at the Federal HousingrnFinance Agency (FHFA).  The letter, whichrneffectively calls for Acting FHFA Director Edward J. DeMarco to be fired, wasrnsent Friday by the group spearheaded by Massachusetts’ AG Martha Coakley andrnNew York’s Eric Schneiderman. </p

The AGs said they have spent severalrnyears grappling with the outgrowth of subprime and predatory lending practicesrnand the resulting foreclosure crisis and that loan modifications have been arnkey component to bringing relief to distressed borrowers and repairing therneconomy.  “Wernhave seen firsthand the positive impact of mortgage modifications, oftenrnincluding principal write-downs, on our housing market, economy, andrncommunities. In fact, principal write-downs are a central component of thernnational settlement, negotiated by the federal government and a bi-partisanrngroup of 49 state attorneys general, that was entered into with five majorrnbanks approximately one year ago,’ the letter states.</p

ThernAGs say that principal write-downs help could help many more families avoidrnunnecessary foreclosure but “FHFA’s refusal to adjust its policies to allow forrnprincipal forgiveness and forbearance stands as a major impediment tornaddressing the foreclosure crisis.”</p

DeMarcornhas consistently stood by his decision to prevent the two government sponsoredrnenterprises (GSEs) Freddie Mac and Fannie Mae from using principal reductionsrnas a method of modifying loans even though the Home Affordable ModificationrnProgram (HAMP) in which FHFA plays a major role actively encourages lenders tornuse its Principal Reduction Alternative (PRA) to make modifications morernaffordable to homeowners.  DeMarcornmaintains his decision is consistent with FHFA’s goal as conservator of thernGSEs to preserve their assets and save taxpayer money.</p

ThernAG’s letter states, “FHFA’s continued position that principal forgivenessrnconflicts with its goal of asset preservation is not supported by reality. ThernFHFA’s current policy actually reduces the value of its holdings portfolio. Itrnis far more profitable for any financial institution to hold a portfolio ofrnperforming $200,000 mortgages that keeps families in their homes than arnportfolio of non-performing $250,000 mortgages headed toward default. “(Emphasisrnis theirs) </p

Coakley had called for DeMarco’s removal back in February and the Wall Street Journal reported at thatrntime that the administration was about to name a replacement. Principalrnreduction has also been the source of some testy exchanges between DeMarco andrnDemocratic members of the House Financial Services Committee, especiallyrnRepresentative Elijah Cummings (D-MD). rnLast month 45 Democratic House members led by Cummings also askedrnPresident Obama to appoint a permanent head of FHFA.  His firing has also been demanded by a numberrnof housing advocacy groups and by Nobel Economist Paul Krugman.  </p

Administration sources have said a new director would probably have to be arnrecess appointment because Senate Republicans are also opposed to allowingrnFreddie Mac and Fannie Mae to write down mortgages and would refuse to confirmrna new director who might approve that action. rnThe confirmation of Obama’s original nominee, Josepha Smith, was not permittedrnan up or down vote by Republicans in the Senate.  DeMarco has been acting director since 2009rnand was originally appointed to FHFA by President George W. Bush.</p

Thernletter from the attorneys general concludes, “Wernhave worked tirelessly, along with our federal, state, and local partners torndevelop a multi-pronged approach to dealing with the foreclosure crisis. FanniernMae and Freddie Mac should be among our partners in this effort, and leaders inrnthe arena of loan modification best practices. Instead, they have been anrnobstruction. We believe that until new, permanent leadership is named to FHFA,rnthey will continue to stand as a roadblock to comprehensively addressing thernforeclosure crisis. </p

Inrnaddition to Coakley and Schneiderman the letter was signed by Kamala D. Harris,rnCalifornia; Beau Biden, Delaware; Lisa Madigan, Illinois; Douglas F. Gansler,rnMaryland; Catherine Cortez Masto, Nevada; Bob Ferguson, Washington; and Ellen Rosenblum, Oregon.

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