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Meet the Obscure Federal Regulator Who’s Not Helping Homeowners | ProPublica

2012 February 20
by chief

Federal Housing Finance Agency Acting Director Edward DeMarco testifies before the House Financial Services Committee's Oversight and Investigations Subcommittee on Dec. 1, 2011. (Chip Somodevilla/Getty Images)

by Cora Currier ProPublica, Feb. 6, 2012, 4:14 p.m.

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 the government 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).

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 2014 reducing the size of a borrower’s mortgage 2014 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 2014 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.

Related: via

What would it take to save millions of homes and billions of dollars in taxpayer money? Replacing one man—Edward DeMarco, the acting head of the Federal Housing Finance Agency.

DeMarco is a Bush appointee, and he acts like one. He’s still in place because Republicans in Congress are stonewalling President Obama’s choice for a replacement.[1] And DeMarco is refusing to do the one thing that could get the economy back on track: allowing homeowners to reset their Fannie and Freddie mortgages to fair market value. He’s even ignoring recommendations by his own agency that show it would be the best way to save homes and taxpayer money.[2]

President Obama has an important opportunity during the next congressional recess to replace DeMarco with someone actually willing to help homeowners and taxpayers. The president used the last congressional recess to protect consumers by appointing Richard Cordray director of the Consumer Protection Bureau; now he needs to protect homeowners by taking the same step with the FHFA.

The media and some Democrats in Congress are just starting to pay attention to what the president is going to do, and Wall Street will fight hard to keep DeMarco. We need to encourage him to take the bold step of replacing DeMarco with someone who’ll do the right thing for the millions of families who are in danger of losing their homes.

Ten million people owe more on their mortgages than their homes are worth. Reducing their mortgage principal would save taxpayers 28 billion dollars, save millions from foreclosure, and stabilize the housing market.[3] In other words, the FHFA would execute its mission, “To promote [Fannie Mae’s and Freddie Mac’s] safety and soundness, support housing finance and affordable housing, and support a stable and liquid mortgage market.”[4]

And since Fannie and Freddie hold 60% of mortgages, allowing them to bring mortgages in line with real home values could make a huge difference. But not only is DeMarco refusing to help homeowners, he’s actually betting against them. Under his leadership, Freddie Mac invested in Wall Street securities that succeed only if homeowners fail.[5]

That’s why we need to make sure President Obama has the progressive backing he needs to replace DeMarco during next week’s recess with someone who will help homeowners by authorizing principal write-down for Fannie and Freddie, to get underwater mortgages closer to their real value.

Sign here to tell President Obama to dump DeMarco and appoint a new head of the FHFA who will do right by homeowners


1. Edward DeMarco: The Ideologue Who’s Holding Homeowners–and the Economy–Hostage The Huffington Post, February 14, 2012

2. Faulty reasoning keeps Fannie and Freddie out of foreclosure deal
Los Angeles Times, February 14, 2012

White House steps up pressure for Fannie, Freddie mortgage write-downs
The Hill, February 12, 2012

3. Edward DeMarco: The Ideologue Who’s Holding Homeowners–and the Economy–Hostage The Huffington Post, February 14, 2012

Fewer homeowners underwater, but number is still high CBS News,
November 29, 2011

4. About FHFA Federal Housing Finance Agency website, accessed February 15, 2012

5. Freddie Mac Bets Against American Homeowners ProPublica, January 30, 2012


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