There’s a big pile-on, calling for President Obama to fire the housing bureaucrat who’s blocking the latest administration housing initiative to reduce principal for underwater homeowners.
Ed DeMarco, who heads the Federal Housing Finance Agency, which oversees Fannie Mae and Freddie Mac, is a Republican holdover appointed by President Bush.
Though DeMarco is supposed to be only acting head of the agency, President Obama has never replaced him.
Now DeMarco is refusing to allow Fannie and Freddie to implement a recent initiative that would offer principal reduction to homeowners who owe more or their mortgages than their homes are worth since the housing bubble burst.
DeMarco’s position is full of holes: he’s worried that if the government doles out principal reductions to some homeowners, homeowners who don’t qualify will lower their incomes and get behind on the their mortgages just to get in line for a principal reductions. And DeMarco claims that principal reduction would be bad for taxpayers, even though his own agency’s research proves him wrong.
Lots of smart folks, including the New York Times’ Paul Krugman, are calling on the president to fire DeMarco. For Krugman and the Democrats, it’s just the latest example of Republicans blocking the President and the Democrats at every step from fixing the economy.
It’s certainly true that Republicans have done nothing themselves to get the economy going and focused solely on demonizing the president and the Democrats.
But do you remember that fiery speech the president gave blasting the presumed Republican presidential candidate, Mitt Romney, for his do-nothing approach to the foreclosure crisis?
Do you remember the president’s strong speeches blasting Republicans’ efforts to blame the foreclosure crisis on borrowers rather than the big banks?
Neither do I.
Is it the Republicans’ fault that the president and his administration have pursued one failed strategy after another that propped up too big to fail banks while not substantially helping homeowners?
Is it Republicans’ fault that the president abandoned one of his campaign promises and failed to push for what could have been one of the most effective strategies to force intransigent banks to renegotiate with strapped borrowers – so-called judicial cram-downs of mortgage debt in bankruptcy court.
That would have allowed bankruptcy judges to reduced mortgage debt as they can other kinds of debt. But it would have accomplished the larger purpose of encouraging bankers to renegotiate with borrowers before they ever got to bankruptcy court.
Only now, after more than three years, when there is a real, live Republican to blame, has Treasury Secretary Timothy Geithner come out swinging – not with aggressive new policies, but against DeMarco.
Two astute observers of government response to the foreclosure crisis, David Dayen at Firedoglake and Yves Smith of Naked Capitalism have pointed out that the Obama administration has been slow to embrace principal reduction in the first place or to convince the public that it’s needed.
In addition, the administration needs to do more to overcome another huge hurdle: under the tax law, the amount of principal reduction will be taxable when a temporary exemption expires at the end of the year.
By all means, the president should fire DeMarco. He should embrace a fight with Republicans when they try to block a permanent appointment to the post. But that should only be the beginning. He should also fire Tim Geithner, who has directly overseen so many of the administration’s previous attempts to deal with housing, which range from the merely feeble to incompetent and downright disastrous. As Neil Barofsky points out, it’s Geithner himself who has stood in the way of principal reductions previously.
If the president and the Democrats are just interested in politics, using DeMarco as a scapegoat will probably help them score some points. But if they’re serious about using principal reductions, the president needs to tackle the opposition directly and convince the public that principal reduction can be a useful tool. And President Obama needs to confront the arguments against them forcefully, whether those arguments come from foot-dragging bankers and investors or dug-in Republicans.