A group of state attorneys general are calling for the replacement of Federal Housing Finance Agency head Edward DeMarco, saying his refusal to allow mortgage principle reductions is unduly prolonging the foreclosure crisis.
In a letter to President Obama and top Senate leaders, the nine state attorneys general called for the expedited appointment of a new, permanent head to the FHFA to replace DeMarco, who is the acting director. They said the refusal of the FHFA, under DeMarco's leadership, to allow principle reductions as part of a comprehensive mortgage modification policy is a direct impediment to the nation's economic recovery.
DeMarco was named by Obama in August 2009 to be the FHFA's acting director, which is supposed to be a temporary position. However, Obama's first choice for the post was blocked by Senate Republicans and he has not put forward a new nominee since then.
Oversees Fannie Mae, Freddie Mac
As conservator for Fannie Mae and Freddie Mac, the FHFA has authority over the two mortgage guarantors. Under DeMarco's leadership, the FHFA has refused to allow them to write off part of the principle of at-risk mortgages as part of a program of loan modifications for at-risk mortgages, saying it would be counter to the FHFA's mandate to conserve the financial assets of the two companies, which are now effectively owned by the taxpayers
The nine attorneys general, as well as other critics of the FHFA, argue that refusing to allow principle reductions on at-risk mortgages actually increases losses for Fannie and Freddie by allowing more borrowers to go into foreclosure.
"We have seen, firsthand, the positive impact of loan modifications, on our housing market, economy and communities," they wrote. They argued that such modifications, generally based on an assessment of the properties net present value, serves the dual purpose of helping borrowers stay in their homes while meeting the economic interests of lenders and investors.
"The FHFA's current policy actually reduces the value of its holdings portfolio," they wrote. "It is far more profitable for any financial institution to hold a portfolio of performing $200,000 mortgages that keeps families in their homes than a portfolio of non-performing $250,000 mortgages headed toward default. "
Worst of foreclosure crisis past
The attorneys generals' petition comes at a time when foreclosure crisis continues, but has lost much of its intensity from a couple years ago. The number of homes lost to foreclosure in February fell to its lowest level since late 2007, according to recent figures from RealtyTrac, and are down 25 percent from their level of one year earlier.
Loan modifications and principle reductions are a major element of the national foreclosure settlement that the federal government and 49 state attorneys general reached with five major banks one year ago.
The letter was signed by the following state attorneys general: Martha Coakely, Massachusetts; Kamala Harris, California; Lisa Madigan, Illinois; Ed Schneiderman, New York: Joseph "Beau" Biden III, Delaware: and Douglas Gansler, Maryland.