The single largest obstacle to meaningful economic recovery is a man who most Americans have probably never heard of, Edward J. DeMarco.
From his perch as acting director of the Federal Housing Finance Agency, DeMarco oversees Fannie Mae and Freddie Mac, the government-owned mortgage behemoths that collectively control about half of all home loans in the land. What he does shapes both the national housing market and the ability of troubled borrowers to hang on to their homes. What he has been doing lately has been so unhelpful that Democratic lawmakers and grassroots advocacy groups are properly demanding his ouster.
DeMarco steadfastly refuses to allow Fannie and Freddie to help distressed homeowners by writing off principal balances on their mortgages. This has ensured that tens of millions of borrowers remain "underwater," meaning they owe the banks more than their homes are worth -- a status that has an alarming tendency to portend foreclosure. His refusal is based on logic that is both elegantly simple and tragically flawed: He is responsible for cleaning up the books at Fannie and Freddie, so he is against spending money.
If DeMarco were fire chief and your house became engulfed in flames, you could forget about calling 911. By his reasoning, the taxpayer would be best served by keeping the fire engines in the station, lest they get damaged in the line of duty. It would not matter whether the flames licking your windows were the result of your recklessness or the product of an explosion at, say, the methamphetamine lab down the street. He would not run up the municipal water bill by saving your block.
Many housing experts have long argued that writing down balances for underwater homeowners is the key to limiting foreclosures. Even the Obama administration -- which previously fought against principal reduction -- has come to embrace this strategy. The $25 billion foreclosure settlement that the administration brokered last month with the nation's five largest banks includes provisions that will write down balances.
