Former FHFA Chief DeMarco Critical of Obama Housing Policy

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Edward " Ed" DeMarco, acting director of the Federal Housing Finance Agency, speaks during an interview in New York, U.S., on Wednesday, March 28, 2012. Fannie Mae and Freddie Mac, the mortgage financiers under government conservancy since 2008, haven't granted principal reductions because it would cost the taxpayer-funded companies almost $100 billion, DeMarco said in a Jan. 20 letter to Congress. Photographer: Scott Eells/Bloomberg *** Local Caption *** Ed DeMarco

Policies that seek to increase homeownership by extending more credit to homeowners are misguided, according to former Federal Housing Finance Agency chief Edward DeMarco.

Speaking at Information Management Networks' ABS East Conference in Miami, DeMarco suggested that policies adopted under the Obama administration risk repeating mistakes that led to the financial crisis, or at the very least, discouraging private capital from returning to the mortgage market.

"As a country, it's time to rethink some basic things about housing policy," he said. "So much of it is about increasing debt, rather than building equity…and subsidizing the cost of that debt."

"Homeownership is about owning a home, not having a mortgage on it. We've seen the tremendous financial damage to families of getting overleveraged: housing prices can come down and in a recession people do get laid off."

"As a country, we are spending $200 billion [a year] or more on housing, both through direct expenditure, subsidies and tax [deductions]. Are we really allocating that in an optimal way, with results to families most in distress? Maybe there is some portion of that we shouldn't be spending at all and another portion that should be redirected."

Asked what is needed to boost the market for private-label mortgage-backed securities, DeMarco said it was necessary to reduce the role of Fannie Mae and Freddie Mac.

"It's very hard for the private-label market to restart with two 900-pound gorillas out there," he said, referring to government-sponsored entities. "It's a very small market, but one thing that would help would be to lower the conforming lending limit back to the $400,000 level, or even less. It's still much higher than the average home price, and it would at least free up some more mortgages to be put into private-label deals. That market is very competitive…people are willing to take credit risk, but it's hard to beat pricing from Fannie and Freddie."

This article originally appeared in Structured Finance News
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Originations Secondary markets Private-label GSEs Securitization Housing
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