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Forty-five Democratic members of the House of Representatives have sent a letter to President Obama urging him to appoint a permanent director to head the Federal Housing Finance Agency (FHFA).  Edward J. DeMarco has been acting director of the agency since James Lockhart resigned in August 2009.  The Senate failed to bring the name of Joseph Smith, named by the President to replace Lockhart, to the floor for confirmation.

The group signing the letter was led by Elijah Cummings (D-MD), Ranking Member of the House Committee on Oversight and Government Reform, and Committee Member John F. Tierney (D-MA).  Cummings has tangled repeatedly with DeMarco over whether Fannie Mae and Freddie Mac (the GSEs) should participate in the Treasury Department's principal reduction program for distressed and underwater homeowners.

The letter noted that it had been three and a half years since Smith's nomination was blocked and suggested the President's recent reelection "is a prime opportunity to put forth a new candidate who is ready and willing to implement all of Congress' directives to meet the critical challenges still facing our nation's housing finance markets."

While the hiring sector is recovering, as of last month there were approximately 10.9 million borrowers who were seriously underwater.  "It is imperative," the House members said "that we have a strong leader at FHFA to take on these challenges, strengthen the housing market, and promote our nation's continued economic recovery."

FHFA is the conservator of the GSEs under the Emergency Economic Stabilization Act of 2008, was directed to "maximize assistance for homeowners," "to minimize foreclosures," and was explicitly granted authority to modify mortgage loans through the "reduction of loan principal."  According to the writers, DeMarco has declined to fully and effectively implement these laws and testified to Congress "that the 'use of a principal reduction within the context of a loan modification is not going to be the least-cost approach by the taxpayer to allow this homeowner an opportunity to stay in their home.'  His testimony has since been contradicted by FHFA's own data, which indicate that principal reduction loan modifications could save U.S. taxpayers billions of dollars compared to allowing underwater homes to go into foreclosure, and that principal reduction loan modifications could save taxpayers hundreds of millions of dollars compared to Mr. DeMarco's preferred alternative of principal forbearance."

The letter says he has also refused to allow the implementation of a pilot program to the cost effectiveness of a principal reduction program and terminated one developed by Fannie Mae and Citibank.  By not supporting this pilot program-even after the Department of Treasury offered funds to "help cover its operational expenses-Mr. DeMarco demonstrated that he is not interested in obtaining real-world evidence that might contradict his pre-established views."

Finally, the letter says, "rather than taking steps to help homeowners facing foreclosure, FHFA recently proposed an action that appears to penalize borrowers arbitrarily by proposing the increase of state-level guarantee fees charged by the GSEs on new borrowers in the five states with the longest average foreclosure timelines."  The agency provided no analysis to support its recommendation which also fails to identify or address specific factors that cause long foreclosure times, "such as inadequate business practices by mortgage companies servicing loans under FHFA's conservatorship."

The letter concludes, "Ensuring that FHFA implements Congressional directives to support the most liquid, efficient, competitive, and resilient housing finance markets is a matter of national urgency. For these reasons, we strongly urge you to nominate an FHFA Director who is ready to fulfill this mission and address the many challenges still facing the nation's housing finance markets."

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