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FHFA director urged to reconsider mortgage principal reductions

In the continuing melodrama in D.C., politicians hash out what they see as the way forward for housing, but the most powerful man in housing says mortgage principal reductions are a moral hazard.

Nancy Pelosi at the podium.

“He must change course.”

In a statement, House Minority Leader Nancy Pelosi (D-CA) has targeted the acting director of the Federal Housing Finance Agency (FHFA), Edward DeMarco for his refusal to reduce mortgage principal amounts for struggling homeowners under Fannie Mae and Freddie Mac, both of which are overseen by the FHFA.

Pelosi accuses DeMarco of threatening to sink the very housing market he is charged with protecting, stating that “Targeted mortgage principal reduction has enormous potential to assist these households and stabilize the housing market,” adding that his refusal to implement mortgage principal reductions “undermine[s] the health of the housing market, and jeopardized the economic security of our middle class.”

“With nearly a quarter of the nation’s mortgages still underwater,” Pelosi, “he must change course.”

Not DeMarco’s first rodeo

This isn’t DeMarco’s first rodeo when it comes to his position, as Democrats have been calling for his resignation for nearly a year. Even U.S. Treasury Secretary Timothy Geithner has urged DeMarco to reconsider his position on principal reduction, which DeMarco argues cannot be implemented, as it incentivizes homeowners that currently pay on time to fall behind in order to qualify for principal reductions.

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Representative Barney Frank (D-MA), senior Democrat on the House Financial Services Committee explained that President Obama has not been able to appoint his own choice of FHFA director due to GOP opposition in the Senate, noting that DeMarco could be removed from the FHFA, an independent agency, but that the law “constricts” the President, and if he replaces DeMarco, Frank says “he has to replace him with one of these other interim guys, who are all like him.”

“The trouble now is it’s so late in the year. You could do a recess [appointment now], but who the hell’s gonna do that for two months?” Frank said. “It’s not responsible.”

“He says, ‘Look, I can’t just look at what happened to Fannie and Freddie, I have to look at the broader case of the taxpayers,’ ” Frank said of DeMarco. “But he stopped short. The broader case is the whole economy.”

Obama’s Housing Secretary Shaun Donovan echoed that sentiment, stating that there is “clear evidence … that principal reductions benefit homeowners and neighborhoods and benefit the taxpayer and the economy more broadly.”

“We believe and the president believes that the decision Edward DeMarco made is wrong,” Donovan said, “and we’re urging him to reconsider.”

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Tara Steele is the News Director at The American Genius, covering entrepreneur, real estate, technology news and everything in between. If you'd like to reach Tara with a question, comment, press release or hot news tip, simply click the link below.

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