Democratic critics of the Obama administration's housing policy are pushing back this week against recent claims by the nation's top mortgage-finance regulator that he lacks the authority to provide "broad" foreclosure relief to the nation's struggling homeowners.
Edward DeMarco, the acting director of the Federal Housing Finance Agency (FHFA), said over the weekend that some of the anti-foreclosure steps the Democrats want his agency to adopt "really go beyond what Congress has given us the authority to do."
"I have encouraged Mr. DeMarco repeatedly to identify any additional legal authorities he needs, and to date he has identified none,” Rep. Elijah Cummings (Md.), senior Democrat on the House Oversight and Government Reform Committee, said Wednesday in an email.
Rep. Dennis Cardoza (D-Calif.), another prominent critic of the FHFA's strategies, voiced a similar note of frustration this week.
"We told him to let us know if he needed anything from us," Cardoza said of DeMarco. "The failure to ask shows a total lack of understanding the depth of the problem."
The lawmakers have been critical of the FHFA's Home Affordable Refinance Program (HARP), a 2009 initiative designed to prevent foreclosures by helping underwater homeowners obtain cheaper loans. The program has fallen far short of expectations, and nationwide, an estimated 11 million homeowners remain underwater on their mortgage loans, meaning they owe more than the home is worth.
Many economists contend the economy will not recover until policymakers find ways to solve the ongoing housing crisis.
Appearing Sunday on C-Span's "Newsmakers" program, DeMarco emphasized that his responsibility as head of the FHFA – an independent agency that oversees Fannie Mae and Freddie Mac – is to make those mortgage giants financially sound for the sake of taxpayers, not to prevent foreclosures for the sake of homeowners.
"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.
If "broad relief" to homeowners "is the appropriate public policy," DeMarco added, "the Congress of the United States should enact legislation that provides those funds for that purpose and directs this agency to carry that out."
The government took over Fannie and Freddie in September 2008 as the housing market plummeted, and taxpayers have already spent $141 billion propping them up in an effort to stabilize the still-volatile housing market.
But the Democrats maintain the best way to ensure the financial health of Fannie and Freddie is to help underwater homeowners refinance at lower rates so they can stay in their homes and continue paying lenders.
DeMarco, Cardoza charged Wednesday, "exhibits a total lack of creativity and a total lack of understanding that you have to move proactively to protect the taxpayers' dollars."
The Democrats have met with DeMarco twice in the last month to discuss the FHFA's efforts to enhance HARP. Administration officials estimated the program would help between 3 million and 4 million homeowners refinance at lower rates, but lenders are not required to participate, and fewer than 900,000 homeowners had benefited from HARP through August.
To boost those figures, FHFA made a number of changes to HARP last month. Additionally, DeMarco is currently weighing a Democratic proposal to allow underwater homeowners who file for Chapter 13 bankruptcy to skip interest payments for five years. Instead, all of their monthly mortgage payments would go toward paying down the principal balance – an option that would both reduce monthly payments and build equity much more quickly.
DeMarco is expected to return his verdict to the Democrats by the end of next week.
Cummings, for his part, has welcomed FHFA's openness to review the principal paydown proposal. But the Maryland Democrat wants the agency to go a step further and reduce principal balances outright.
"Mr. DeMarco has stated he is committed to keeping Americans in their homes while protecting the interests of taxpayers," he said Wednesday. "Given that many leading economists believe principal reductions are critical to achieving both objectives, I believe Mr. DeMarco should immediately consider this policy option, as several banks have already done."
DeMarco, though, has rejected that idea in no uncertain terms.
"Principal forgiveness," he told C-Span, "doesn't accomplish our conservator mandate relative to the loan modification tools and techniques that we have in place now."