Congressional Democrats are urging President Obama to nominate a new GSE regulator to replace Federal Housing Finance Agency acting director Edward DeMarco, even though Senate Republicans are very likely to block any nominee.
In a letter to the president, 45 Democratic representatives cite DeMarco’s opposition to principal reduction as the main reason for replacing him.
“We believe your re-election is a prime opportunity to put forth a candidate who is ready and willing to implement all of Congress’ directives to meet the critical challenges still facing our nation’s housing finance markets,” the Feb. 7 letter says.
In late 2010, Senate Republicans—lead by Sen. Richard Shelby, R-Ala.—blocked the confirmation of North Carolina bank commissioner Joseph Smith to be the FHFA director on the grounds that he would implement a principal reduction program.
In the House, Rep. Elijah Cummings, D-Md., has repeatedly pressed DeMarco to initiate a principal reduction program for underwater Fannie Mae and Freddie Mac loans. And the Treasury Department has offered to pay incentive fees to the GSEs for making principal reductions as part of a loan modification.
But the acting director continues to insist that principal reductions will increase Fannie and Freddie’s losses. And principal forbearance, where borrowers don’t pay interest in a portion of the loan amount, is more effective.
“Most troubling,” Cummings and the other 44 the congressmen say, Demarco has refused to implement a pilot program to test whether principal reduction would reduce costs and help more borrowers stay in their homes.
Meanwhile, nearly 11 million homeowners are underwater where the amount of their mortgage is 25% higher than the value of the property.
“It is imperative that we have a strong leader at FHFA to take on these challenges, strengthen the housing market and promote our nation’s continued economic recovery,” the letter says.
Currently, Senate Republicans are threatening to filibuster any nominee to be the Consumer Financial Protection Bureau director until the Obama administration agrees to restructure the bureau.
And any attempt to nominate a FHFA director would likely be filibustered to put more pressure on the president to restructure the CFPB.
Some observers expect the president will fire DeMarco and replace him with Michael Stegman, a special advisor to the Treasury secretary on housing finance policy.
President Obama appointed DeMarco to be the acting director in August 2009 when FHFA director James Lockhart stepped down. DeMarco is a former Treasury official and he was serving as the FHFA deputy director at the time of his appointment by the president.