It was perhaps inevitable that another White House housing initiative would inspire calls from Capital Hill for principal write downs, but a group of Democrats have taken it a step further in not only pressuring the president for write downs, but also renewing demands for the removal of Federal Housing Finance Agency Acting Director Edward DeMarco.
Principal write downs have had a troubled history among policymakers. Though the measure has been repeatedly suggested (mostly by Democrats) as a remedy, if not panacea, for housing’s ills, DeMarco has resisted any Fannie Mae or Freddie Mac program that would offer such benefits to homeowners, arguing it would be far too costly to taxpayers, who have already given some $187 billion to the GSEs, according to a Stephens Washington Bureau report on the controversy.
The report also quoted a number of those lawmakers advocating for principal write down legislation. Brad Miller, a Democratic representative from North Carolina, said that mathematics leads him to support the policy.
“Do the math,” he said. “The best thing for taxpayers is to reduce principal in a smart way. A foreclosure will cost the mortgage owners 50 to 70 percent the value of the mortgage. Which is better? To reduce the mortgage by 20 to 30 percent and have a homeowner be able to pay that, or to lose 50 to 70 percent by foreclosing?”
Yvette Clark, a Democratic representative from New York, also said that principal write downs were the only true answer to fight the housing crisis.
“The best way to combat the rise of foreclosures is for Fannie Mae and Freddie Mac, the largest holders of subprime mortgages, to be directed to provide straightforward principal reductions,” Clark said. “We can no longer afford to have this nation’s economic growth stifled by a stagnant housing market.”
Rep. Shelley Berkley, a Democrat from Nevada, said earlier this week that she called for DeMarco “to step down months ago. He has been impossible to deal with.”
And DeMarco is not even President Obama’s choice to head the agency. In 2010, Obama nominated Joseph A. Smith, a regulator from North Carolina, to succeed DeMarco, but the nomination has been mired by opposition from Senate Republicans, namely because, as the Bureau article points out, that Smith is a likely proponent of principal write downs.
According to the Bureau’s report, DeMarco detailed his views on principal reductions in a letter to Kamala Harris, California’s determined Attorney General. The FHFA, DeMarco wrote, has analyzed principal write down programs on three separate occasions, and each time, it concluded that loan modifications were a more effective and less costly method for dealing with distressed mortgages. He also pointed to more than two million transactions and one million loan modifications undertaken by Fannie and Freddie to stave off foreclosures.