In the eyes of the attorneys general from nine states principal writedowns on federally insured mortgage loans are the Achilles’ heel of the housing and overall economic recovery.
So they are calling for the removal of Edward DeMarco, the man who by refusing to allow principal writedowns on Fannie Mae and Freddie Mac loans is pulling the breaks on the recovery.
A nine-state coalition lead by New York Attorney General Eric Schneiderman and Massachusetts Attorney General Martha Coakley is demanding new, permanent leadership at the Federal Housing Finance Agency that oversees Fannie Mae and Freddie Mac.
In a letter to the president and congressional leaders, the attorneys general argue that the FHFA’s acting director Edward DeMarco, who was appointed by former President George W. Bush, has continuously refused to give principal relief for struggling homeowners, which in turn has been a “direct impediment to our economic recovery,” hence he must be replaced, they wrote.
Under the leadership of DeMarco, who refuses to adopt policies that will help maximize relief for struggling homeowners through “principal writedowns that would result in more loan modifications,” Fannie Mae and Freddie Mac hinder progress, said Schneiderman.
“The time has come for the president and Congress to work together to install a new, permanent leader at FHFA that will be a partner, not an impediment, in the national effort to comprehensively address the foreclosure crisis,” he added.
In the letter, the attorneys general argue that principal writedowns are a central component of the national settlement because it helps so-called underwater borrowers whose mortgages are worth more than their homes. And since loan modifications are based on the net present value of a mortgage loan “it serves the dual purposes of helping borrowers keep their homes and meeting the economic interests of lenders and investors,” while having a positive impact on the housing market and the economy.
Which is why, the attorneys general argue, the FHFA's claim that principal forgiveness conflicts with its goal of asset preservation not only is “not supported by reality,” but actually reduces the value of the Fannie and Freddie portfolios.
“It is far more profitable for any financial institution to hold a portfolio of performing $200,000 mortgages that lets families keep their homes than a portfolio of nonperforming $250,000 mortgages headed toward default,” the letter notes.
They call on Fannie and Freddie to join all the other federal, state and local entities that have partnered with the AGs “to develop a multipronged approach to dealing with the foreclosure crisis,” including loan modification best practices.
Besides Schneiderman and Coakley, the attorneys general of California, Delaware, Illinois, Maryland, Nevada, Oregon and Washington signed the letter.