Edward DeMarco, "the most powerful man in housing policy."

Published: Tuesday 7 February 2012

“As head of the FHFA, DeMarco has a three-part mission: to promote the soundness of Fannie and Freddie, and to support affordable housing and a stable and liquid mortgage market.”

Photo: Adam Fagen

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Last week, ProP­ub­lica and NPR raised ques­tions about a risky in­vest­ment strat­egy at Fred­die Mac that would pay off if home­own­ers stayed trapped in ex­pen­sive mort­gages. It's just the lat­est ex­am­ple of how gov­ern­ment-owned Fred­die Mac and Fan­nie Mae have frus­trated many by not putting home­own­ers first.

Fan­nie and Fred­die are re­quired to help home­own­ers while earn­ing prof­its so they can pay back the tax­pay­ers who bailed them out. Here is our guide to the lit­tle-known fed­eral reg­u­la­tor, Ed­ward De­Marco, ul­ti­mately in charge of the two com­pa­nies. You may have never heard of him, but as The Wash­ing­ton Post put it, he's "the most pow­er­ful man in hous­ing pol­icy."

The ba­sics

In the sum­mer of 2008, as part of a larger eco­nomic stim­u­lus bill amid the sub­prime mort­gage cri­sis, Pres­i­dent George W. Bush cre­ated the Fed­eral Hous­ing Fi­nance Agency, com­bin­ing sev­eral agen­cies over­see­ing hous­ing pol­icy, and in­creas­ing reg­u­la­tion of gov­ern­ment-spon­sored en­ter­prises like Fan­nie and Fred­die. When thegov­ern­ment bailed out Fan­nie and Fred­die a few months later, the FHFA took charge of them.

De­Marco, a life­long reg­u­la­tor, was named the act­ing head of the FHFA roughly a year after the bailout when his Bush-ap­pointed pre­de­ces­sor stepped down. Obama nom­i­nated a con­sumer-friendly re­place­ment for De­Marco in Oc­to­ber 2010, but Re­pub­li­cans blocked him. (Re­pub­li­can op­po­si­tion to Obama's nom­i­nee for De­Marco's suc­ces­sor stemmed in part from con­cerns that he would push banks and oth­ers too far to help home­own­ers, un­fairly re­ward­ing reck­less bor­row­ers.)

As head of the FHFA, De­Marco has a three-part mis­sion: to pro­mote the sound­ness of Fan­nie and Fred­die, and to sup­port af­ford­able hous­ing and a sta­ble and liq­uid mort­gage mar­ket (in other words, to ex­pand ac­cess to home own­er­ship loans and make it eas­ier to buy and sell mort­gages).

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The last two goals, though, can clash with the fact that under the bailout, De­Marco is the "con­ser­va­tor" of Fred­die and Fan­nie, mean­ing he has to pro­tect their fi­nances for the ben­e­fit of their share­hold­ers. (And the ma­jor­ity share­holder is now the fed­eral gov­ern­ment.) Ac­cord­ing to The Wash­ing­ton Post's Brad Plumer and Ezra Klein, there is "a con­flict tucked deep into De­Marco's job de­scrip­tion: The head of the FHFA is stuck be­tween the nar­row needs of Fan­nie and Fred­die and the broader needs of the hous­ing mar­ket."

De­Marco has fo­cused al­most solely on that first goal, telling Con­gress many times that "as con­ser­va­tor, FHFA has a statu­tory re­spon­si­bil­ity to pre­serve and con­serve the en­ter­prises' as­sets." In plainer terms, he told NPR last week that his role is to "make sure Fan­nie Mae and Fred­die Mac un­der­take ac­tiv­i­ties that don't cause fur­ther losses for the Amer­i­can tax­pay­ers."

De­Marco has strongly as­serted his in­de­pen­dence, in­sist­ing that he is pro­mot­ing needed fis­cal dis­ci­pline. (He did not re­spond to our lat­est re­quests for com­ment on his role with the FHFA).

Clashes with Con­gress and Obama

De­moc­rats and Obama ad­min­is­tra­tion of­fi­cials have been frus­trated with De­Marco, say­ing the FHFA's nar­row focus on Fan­nie and Fred­die's health has hurt the hous­ing mar­ket.

The Obama ad­min­is­tra­tion has re­peat­edly tried to push prin­ci­pal re­duc­tion — re­duc­ing the size of a bor­rower's mort­gage — as a way to help home­own­ers, es­pe­cially those with homes worth less than their mort­gages. But as ProP­ub­lica and oth­ers have re­ported, time and again, Fan­nie and Fred­die wouldn't par­tic­i­pate: a crip­pling prob­lem, since the two com­pa­nies own or guar­an­tee about half of the coun­try's mort­gages.

Last month, the ad­min­is­tra­tion un­veiled yet an­other plan to en­cour­age prin­ci­pal re­duc­tion, but a for­mer ad­min­is­tra­tion ad­viser called De­Marco "the boul­der" in the way of mak­ing it hap­pen.

De­Marco says prin­ci­pal re­duc­tion could cost tax­pay­ers $100 bil­lion. Some econ­o­mists counter that while prin­ci­pal re­duc­tions might lead to a short-term hit for Fan­nie and Fred­die, it would ul­ti­mately re­sult in fewer un­der­wa­ter mort­gages, fewer fore­clo­sures and a health­ier hous­ing mar­ket — all good for Fan­nie and Fred­die's bot­tom line.

On an­other ad­min­is­tra­tion plan, to allow more bor­row­ers to re­fi­nance at lower rates, De­Marco shifted some­what to­ward the White House's po­si­tion. He agreed to lift some fees on re­fi­nanc­ing and make it eas­ier to qual­ify. Fred­die Mac told ProP­ub­lica in a state­ment that it has helped more than 830,000 fam­i­lies re­fi­nance, but as we noted, crit­ics say that the re­fi­nanc­ing ef­fort could be help­ing mil­lions more.

As De­Marco told Politico, he's been no "par­tic­u­lar friend" of banks. He brought a mas­sive law­suit against 17 banks, al­leg­ing fraud over $200 bil­lion in toxic mort­gages sold to Fan­nie and Fred­die. The case is on­go­ing.

De­Marco is also charged with help­ing Fan­nie and Fred­die go gen­tly into the night. As part of their bailout, the two com­pa­nies are sup­posed to wind down their op­er­a­tions. And just as De­Marco has re­sisted De­mo­c­ra­tic calls for more ag­gres­sive help for home­own­ers,he's also pushed back against Re­pub­li­can calls to spin off the com­pa­nies more quickly. He's also re­jected GOP plans to cap ex­ec­u­tive pay at Fan­nie and Fred­die.

Why he's still there

Last week, De­Marco de­scribed his job as a "bal­anc­ing act." It's cer­tainly thank­less. While De­moc­rats have called for De­Marco's head, the FHFA is an in­de­pen­dent agency, mean­ing the Obama ad­min­is­tra­tion can't just get rid of him over pol­icy dis­putes such as his stance on re­fi­nanc­ing or prin­ci­pal re­duc­tion. He could also be re­placed if Obama de­cides to offer an­other nom­i­nee and the Sen­ate con­firms the choice. Bar­ring that, De­Marco will likely re­main where he is for some time, walk­ing his own line on Fan­nie and Fred­die's con­tra­dic­tory mis­sion.

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Added 16 Feb 2012

Meet Edward DeMarco. As director of the Federal Housing Finance Agency, his job is to do everything in his power to help Americans avoid foreclosure. But DeMarco seems to think his job is just the opposite. In fact, in our fight to get justice for homeowners across the country, Edward DeMarco might just be enemy number one.

DeMarco is a holdover from the Bush administration. He has a very powerful position: he oversees Freddie Mac and Fannie Mae, which hold half the mortgages in the country. DeMarco has used his position to repeatedly side with Wall Street, and he's blocked requests by Congress and the Obama administration to help struggling homeowners by reducing principals on loans. Principal reduction -- which means resetting underwater mortgages so they're closer to fair market value -- is an essential solution that millions of families need, but DeMarco is dead set against them.

Now here's the good news: Next week, during Congress's recess, President Obama has the opportunity to make a recess appointment and replace DeMarco immediately. Let's ask the President to do just that.

Tell President Obama to fire Edward DeMarco this week and appoint a new director that won't stand in the way of relief for homeowners.

DeMarco has come under harsh criticism from members of Congress, and for good reason. He is absolutely opposed to principal reductions on loans, a measure that's been touted by economists and U.S. government officials as the best way to help homeowners who are underwater on their mortgages.

But it doesn't end there.

A recent news investigation revealed that, under DeMarco, Freddie Mac invested billions of dollars in Wall Street securities that bet against homeowners' ability to refinance their loans, while at the same time raising fees that made it harder for homeowners to refinance.

Let's be clear: DeMarco isn't just doing a bad job. He is actively working against the interests of American homeowners and the government's efforts to help them. That's an outrage, and it's time for President Obama to fire him.

Sign the petition and demand DeMarco be fired and replaced immediately.

The President made a strong recess appointment when he installed Richard Cordray recently as director of the Consumer Financial Protection Bureau, selecting someone we could rely on to serve the interests of people over Wall Street. We need a similar leader at the helm of the Federal Housing Finance Agency, and Edward DeMarco isn't it.

With enough signatures, we can send a message to President Obama and remove a major obstacle in our mission to get justice for homeowners.

Thank you,