Nine state attorneys general have sent a
letter to President Obama, Senate Majority Leader Harry Reid and Senate
Minority Leader Mitch McConnell demanding new leadership at the Federal Housing
Finance Agency (FHFA). The letter, which
effectively calls for Acting FHFA Director Edward J. DeMarco to be fired, was
sent Friday by the group spearheaded by Massachusetts' AG Martha Coakley and
New York's Eric Schneiderman.
The AGs said they have spent several
years grappling with the outgrowth of subprime and predatory lending practices
and the resulting foreclosure crisis and that loan modifications have been a
key component to bringing relief to distressed borrowers and repairing the
have seen firsthand the positive impact of mortgage modifications, often
including principal write-downs, on our housing market, economy, and
communities. In fact, principal write-downs are a central component of the
national settlement, negotiated by the federal government and a bi-partisan
group of 49 state attorneys general, that was entered into with five major
banks approximately one year ago,' the letter states.
AGs say that principal write-downs help could help many more families avoid
unnecessary foreclosure but "FHFA's refusal to adjust its policies to allow for
principal forgiveness and forbearance stands as a major impediment to
addressing the foreclosure crisis."
has consistently stood by his decision to prevent the two government sponsored
enterprises (GSEs) Freddie Mac and Fannie Mae from using principal reductions
as a method of modifying loans even though the Home Affordable Modification
Program (HAMP) in which FHFA plays a major role actively encourages lenders to
use its Principal Reduction Alternative (PRA) to make modifications more
affordable to homeowners. DeMarco
maintains his decision is consistent with FHFA's goal as conservator of the
GSEs to preserve their assets and save taxpayer money.
AG's letter states, "FHFA's continued position that principal forgiveness
conflicts with its goal of asset preservation is not supported by reality. The
FHFA's current policy actually reduces the value of its holdings portfolio. It
is far more profitable for any financial institution to hold a portfolio of
performing $200,000 mortgages that keeps families in their homes than a
portfolio of non-performing $250,000 mortgages headed toward default. "(Emphasis
Coakley had called for DeMarco's removal back in February and the Wall Street Journal reported at that
time that the administration was about to name a replacement. Principal
reduction has also been the source of some testy exchanges between DeMarco and
Democratic members of the House Financial Services Committee, especially
Representative Elijah Cummings (D-MD).
Last month 45 Democratic House members led by Cummings also asked
President Obama to appoint a permanent head of FHFA. His firing has also been demanded by a number
of housing advocacy groups and by Nobel Economist Paul Krugman.
Administration sources have said a new director would probably have to be a
recess appointment because Senate Republicans are also opposed to allowing
Freddie Mac and Fannie Mae to write down mortgages and would refuse to confirm
a new director who might approve that action.
The confirmation of Obama's original nominee, Josepha Smith, was not permitted
an up or down vote by Republicans in the Senate. DeMarco has been acting director since 2009
and was originally appointed to FHFA by President George W. Bush.
letter from the attorneys general concludes, "We
have worked tirelessly, along with our federal, state, and local partners to
develop a multi-pronged approach to dealing with the foreclosure crisis. Fannie
Mae and Freddie Mac should be among our partners in this effort, and leaders in
the arena of loan modification best practices. Instead, they have been an
obstruction. We believe that until new, permanent leadership is named to FHFA,
they will continue to stand as a roadblock to comprehensively addressing the
addition to Coakley and Schneiderman the letter was signed by Kamala D. Harris,
California; Beau Biden, Delaware; Lisa Madigan, Illinois; Douglas F. Gansler,
Maryland; Catherine Cortez Masto, Nevada; Bob Ferguson, Washington; and Ellen Rosenblum, Oregon.