Top housing regulator says he lacks authority for foreclosure relief

The country's leading housing regulator said he lacks the authority to provide "broad relief" to struggling homeowners trying to avoid foreclosure.

A growing list of House Democrats has been pushing the Federal Housing Finance Agency (FHFA) — an independent agency that regulates Fannie Mae and Freddie Mac — to focus its efforts on helping underwater homeowners refinance at lower rates to prevent foreclosures.

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But Edward DeMarco, the FHFA's acting director, said recently that the agency's legal responsibility is to protect taxpayers by focusing on the financial health of Freddie and Fannie.

"We have a responsibility to be minimizing losses from older mortgages that have been made, and to provide assistance to homeowners where that assistance is going to lower the cost to taxpayers relative to the cost of that house going through foreclosure," DeMarco said over the weekend during an interview on C-SPAN's "Newsmakers" program.

If "broad relief" to homeowners "is the appropriate public policy," DeMarco argued, "the Congress of the United States should enact legislation that provides those funds for that purpose and directs this agency to carry that out."

"Some of those things that are being advocated for us to do really go beyond what Congress has given us the authority to do," he added. "The funds that have been made available by Congress for Freddie and Fannie were not provided for that kind of broad relief purpose."

The comments seem to contradict claims made just weeks ago by Reps. Elijah Cummings (D-Md.) and Dennis Cardoza (D-Calif.), who met with DeMarco on Oct. 6 to discuss ways the FHFA could bolster its foreclosure-prevention efforts. The lawmakers said they asked DeMarco directly if he needed Congress to grant him additional powers to prevent foreclosures. DeMarco, according to the Democrats, said he didn't.

"One of the first things I said when we walked through the door was, 'If there are things that you need from us that we can help you with then let us know,' and he didn't ask for any other type of authority," Cummings, ranking Democrat on the House Oversight and Government Reform Committee, told reporters after the Oct. 6 meeting.

Cummings said he urged DeMarco "to use every bit of influence that he has — within ethical bounds, of course, legal bounds — to have an effect on more than just the GSEs [Freddie and Fannie]."

Cardoza delivered a similar report about the Oct. 6 meeting.

"He has the market power, with 30 million mortgages, to do much broader work than he's doing, and [he] won't stand up and step up and take authority," Cardoza said of DeMarco. "And he didn't deny that he had that capability."

An FHFA spokesman declined to comment on Monday.

Cardoza said Treasury Secretary Timothy Geithner believes the FHFA has the power to focus on foreclosure-prevention, not just the financial health of Fannie and Freddie. The Democrats say the two efforts are not mutually exclusive, and that Freddie and Fannie would be helped financially if more people remain in their homes making payments.

"Mr. Geithner told me in a private meeting that he believed they have all the statutory authority to do what they needed to do to correct the housing market," Cardoza said. 

Last Monday, the FHFA sought to improve its anti-foreclosure efforts with a number of reforms to the Home Affordable Refinance Program (HARP), a 2009 initiative designed to help underwater homeowners obtain cheaper loans.

Two days later, DeMarco met for a second time with Cummings, Cardoza and more than a dozen other House Democrats to discuss that plan, as well as other strategies for preventing foreclosures.

Some lawmakers have urged the administration to reduce the principal balance of some mortgage loans — a notion DeMarco rejected outright in the C-SPAN interview.

DeMarco was, however, very receptive to the idea of principal forbearance, in which homeowners can skip interest payments temporarily instead directing all of their monthly mortgage payments toward paying down the principal balance.

"The principal is not being forgiven. The borrower still has an obligation and a responsibility for the ultimate repayment of the loan," DeMarco told C-SPAN. "We think that that's striking the appropriate balance of providing assistance to the borrower but also protecting the American taxpayer, who's standing behind these loans now."

DeMarco told the 19 Democrats last Wednesday that he would evaluate a Democratic proposal that offers principal forbearance for five years to homeowners who declare Chapter 13 bankruptcy. He is expected to inform the lawmakers of his verdict before the end of next week.