Mortgage Relief

Home Defenders League: Underwater Homeowners Mobilize For Political Impact

Isaiah J. Poole — Thu, 31 May 2012 13:53:19 -0400

Ruby Brown of Minneapolis says that for the past four years, she has been "struggling to keep Bank of America from taking my home," trying to convince the bank to reset the principal on her mortgage to its current market value. But the bank has refused, and she fears marshals will be coming to evict her any day now.

Kathy Busby has been fighting a similar fight to save her home in Denver. She has been negotiating with Wells Fargo to avoid foreclosure, and has paid $27,000 toward her mortgage costs in the past four years—only to have Wells Fargo assess tens of thousands of dollars in additional fees and interest, without explanation. "We're being treated like animals that have no rights," she said.

Brown and Busby were two of the underwater homeowners—people who owe more on their mortgage than their home is worth—who have signed up to be members of the Home Defenders League, a new organization designed to press politicians running for Congress to take a stand supporting mortgage resets, sometimes called mortgage write-downs.

There are an estimated 15 million homeowners who are underwater on their mortgages, according to data collected by the Home Defenders League. "That's a lot of voters," Brown noted during a conference call today to announce the launch of the organization.

The League intends to reach out to those homeowners through phone banks throughout the country, particularly in states where the mortgage crisis has been acute—and which also happen to be pivotal states in the presidential and congressional elections, including Florida, North Carolina, Colorado, Nevada, Arizona and Pennsylvania.

"Home Defenders League members are calling on 2012 candidates to support their primary goal: resetting millions of mortgages to fair market value in an effort to stabilize home values for all Americans and jumpstart the economy," says a statement on the organization's website.

This is the same demand we have been making on Edward DeMarco, the head of the Federal Housing Finance Agency, which oversees the housing financiers Fannie Mae and Freddie Mac. DeMarco has opposed having Fannie Mae and Freddie Mac proceed with mortgage resets even though his own agency has studies that show such actions would be a net benefit to the federal government as well as homeowners. Several members of the Progressive Caucus have signed on in support of mortgage resets.

But now it is time to up the ante. What's at stake is more than $1 trillion locked up in illusory, inflated home "value" that is unlikely to ever be realized in the foreseeable future. If this bubble-induced negative equity were erased from the the banks' books and lifted off the shoulders of homeowners, that would allow homeowners threatened by foreclosure to remain in their homes, would stabilize communities and home values, and would free an estimated $71 billion to be spent by homeowners in their communities, thus creating jobs and boosting the economy.

President Obama has shown sympathy for the plight of underwater homeowners and has proposed some measures to help, but he has not taken the kind of forceful action that would lead to the kind of massive resetting of mortgages that is called for. But that is more than can be said for Mitt Romney, who early in his campaign for the Republican nomination famously said that the federal government should just allow the housing market, and for that matter homeowners, "to run its course and hit bottom." Only when his campaign needed to pick up votes in Florida, one of the states hardest hit by the mortgage crisis, did he Etch a Sketch his previous position, suggesting that it would be better for mortgage lenders to "write it off and say they made a mistake."

Romney's reversal shows the potential for what the Home Defenders League can accomplish in congressional races: Faced with underwater homeowners organized into a potent political force, armed with the facts of the damage being done by bankers refusing to reset homeowner mortgages to their true value, politicians who would reflexively side with their Wall Street contributors would have to either Etch a Sketch their previous positions or find that their Wall Street campaign dollars are rendered worthless by homeowners who are mad as hell and are not taking it anymore.

Raiding Opportunity

Alan Jenkins — Mon, 28 May 2012 21:10:26 -0400

The ink’s barely dry on the historic settlement of “robo-signing” and other abusive foreclosure practices by five big banks. But, already, some states are raiding the settlement funds to finance activities having nothing to do with preventing foreclosures or preserving homeownership. Their actions are a second slap in the face to millions of Americans who were wronged by lender misconduct and inadequate consumer protections. They are unjust, shortsighted, and, quite possibly, illegal.

The $25 billion settlement between 49 state attorneys general, the Obama administration, and the nation's five largest mortgage companies announced its intention “to remediate harms allegedly resulting from the alleged unlawful conduct of the [banks].” The National Association of Attorneys General explained that “the settlement addresses past mortgage loan servicing and foreclosure abuses and fraud, provides substantial financial relief to borrowers harmed by bank fraud, and establishes significant new homeowner protections for the future.”

The settlement has produced some important and positive changes. It is aiding many struggling homeowners by reducing their mortgage principal to fair and affordable levels and allowing them to refinance at today’s lower rates. It requires covered banks to provide a single point of contact for homeowners, mandates adequate staffing levels and training, and ends “dual-track foreclosures,” in which servicers foreclose on homes while still negotiating loan modifications with their owners.

But alongside those positive steps, a growing number of states are diverting funds from the settlement to fill general budget gaps and for other unrelated purposes. Georgia and Wisconsin acted swiftly to raid their settlement funds, over the protests of lawmakers and advocates who supported the deal. California, Missouri, Nebraska, and others are following suit. According to the non-profit investigative journalism organization ProPublica, states have already diverted $974 million from the settlement to reduce budget deficits or fund unrelated activities.

Diverting settlement funds away from home opportunity is a new violation of the American people’s trust. The data company RealtyTrac predicts as many as 1 million new foreclosures this year—nearly 200,000 more than in 2011. Every penny of settlement resources should be invested in heading off that catastrophic outcome while mitigating the effects of foreclosures that have already occurred.

Raiding settlement funds is also shortsighted, because supporting home opportunity is an investment in our economy, including state budgets. Proven strategies like principal reduction, housing counseling, and own-to-rent programs aid struggling homeowners, to be sure. But they also improve neighborhood home values, increase state and local tax revenues, reduce the need to maintain abandoned properties, and relieve the burden on social service agencies.

A coalition of housing and consumer protection groups that includes The Opportunity Agenda and the National Council of La Raza has released a Compact for Home Opportunity detailing over two dozen initiatives that can prevent foreclosures, ensure fair housing and lending, and rebuild the American Dream. Virtually any item in the Compact would be a valid use of settlement funds. But dumping those funds into states’ general coffers is irresponsible and outrageous.

It may also be illegal. The diversion of funds violates the stated purpose of the agreement, as well as its spirit. The wronged American homeowners who are, in legal parlance, the third-party beneficiaries of the agreement may have a right to demand proper usage of settlement funds.

In many states, moreover, diverting settlement funds has a racially discriminatory effect on minority homeowners and former homeowners. While most victims of bank misconduct are white, homeowners of color were disproportionately and intentionally targeted by brokers and lenders for flawed loans, and are overrepresented amongst those facing foreclosure. People of color represent less than 20% of the population in Wisconsin, for instance, but over 40% of the population in Milwaukee, where exploitation of homeowners was concentrated. The numbers in Georgia are similarly stark. Dumping settlement funds into the general treasury again disadvantages these homeowners struggling to regain their footing.

All of the states covered by the settlement have an obligation under the Fair Housing Act and the Civil Rights Act of 1964, respectively, to affirmatively further fair housing, and to avoid discriminatory patterns in their programs and activities. The diversion of funds may violate both of those provisions.

Everyone agrees that much more is needed to restore home opportunity around the country. But the settlement was an important step in the right direction. Diverting the resources that it produced violates the letter and spirit of the settlement, squanders an historic opportunity, and harms the very Americans whom the settlement was intended to help. It should not be allowed to stand.

Demand The White House Answer Us: Will You Save Underwater Homeowners?

Isaiah J. Poole — Fri, 20 Apr 2012 15:26:57 -0400

If enough of us demand it, we can get the White House to answer a simple question: Will you or will you not stand with underwater homeowners and push for principal reductions—even if it means pushing aside the agency chief who is opposing that remedy?

We're asking our supporters to join with Rebuild the Dream and sign this White House petition now calling for "Fannie Mae and Freddie Mac to issue principal reductions for underwater homeowners." If 25,000 people sign the petition by Sunday, the administration has promised to respond. As of 3 p.m. today, the petition was less than 4,000 short of the signatures it needed.

This petition follows on the heels of our own petition to President Obama that he should fire Edward DeMarco—the head of the Federal Housing Finance Agency, which oversees Fannie Mae and Freddie Mac—if DeMarco continues to oppose principal write-downs for underwater homeowners.

A recent report by the staff of the Federal Housing Finance Agency has concluded that if mortgage financiers Fannie Mae and Freddie Mac would allow underwater mortgages to be written down to their true value, not only would millions of homeowners would benefit but taxpayers would save money in the long run. And that, in turn, would stimulate the economy: The spending that would be unleashed once the debt bubble around these homeowners is burst could support the creation of a million new jobs, according to The New Bottom Line.

Earlier this week Edward Luce wrote in the Financial Times that DeMarco's resistance, and Obama's seeming impotence in the face of that resistance, were standing in the way of a robust housing recovery. And without a robust housing recovery, a general economic recovery with the kind of job growth we need would be unlikely.

"Rarely in the annals of American administrations has one president encountered so much stubbornness from one regulator," Luce wrote. "So far Mr DeMarco has resisted White House blandishments to allow large write-downs of the principal mortgages of delinquent borrowers. Indeed, he has been blocking efforts to provide more help for distressed homeowners since Mr. Obama took office. He has played the immovable object; Mr. Obama, the resistible force."

Luce's column ends with the kind of common sense that should be at the core of how our regulators should respond to the housing crisis. "Every American is damaged by the bad housing market because it holds down the rate of economic recovery," he wrote. "Reviving it has nothing to do with morality. It is about raw, capitalist self-interest. It is therefore also about protecting the taxpayer. What a pity Mr. Obama is still reluctant to enforce his own arguments."

But perhaps that can change if thousands of people demand that the White House respond to the question: Will you allow Edward DeMarco, a Bush administration holdover, to keep the economy in the ditch that Bush administration policies dug, or will you move the obstructions aside to provide relief to underwater homeowners and a boost to the economy?

Let's see if we can get an answer.

DeMarco Speaks! (With Closed Captioning For the Mortgage-Impaired)

Richard Eskow — Wed, 11 Apr 2012 01:10:11 -0400

Edward DeMarco is the beleaguered bureaucrat in charge of an agency called the Federal Housing Finance Agency. And because the FHFA is now managing Fannie Mae and Freddie Mac, DeMarco's in charge of most American mortgages. He's been the target of resignation demands for weeks. Everyone from Tim Geithner on down - and therefore presumably President Obama, too - has singled out DeMarco as the one person standing in the way of relief for millions of American homeowners.

DeMarco's still an unelected ideologue with too much power, and he still needs to go. But today, after remaining silent and refusing to share some of his technical information with members of a Congressional oversight committee, the previously Garbo-esque Ed DeMarco finally spoke up today. His speech at the Brookings Institution was technical in nature, but to anyone with the right political or emotional closed-captioning device the message was loud and clear: Don't rush me, Mr. President - and find yourself another fall guy.

And to anyone who's underwater on a mortgage the message was even clearer: You're not getting much help from me.

Using material from his prepared text, we now present the remarks of Edward DeMarco - with closed captioning provided for the mortgage impaired:

WHAT DEMARCO SAID:

"I will not be announcing any conclusions today - our work is not yet complete - "

WHAT HE MEANT (closed captioning):

What's the hurry? It's only been three years, eleven million underwater mortgages, and lost housing value that exceeds seven trillion dollars. We'll get around to it eventually. I promise.

WHAT DEMARCO SAID:

" ...but in view of the state of the public policy debate on this subject ..."

WHAT HE MEANT:

The public pressure is finally getting to me ... and maybe even to my political patron on Capitol Hill, Sen. Richard Shelby.

(Shelby's the Republican from Alabama who has abused Senatorial privilege for three years by refusing to allow a hearing on Obama's nominee for DeMarco's position as head of the FHFA. That's left DeMarco in place as Acting Director for quite a while now.)

WHAT DEMARCO SAID:

" ... , I am pleased to have this venue to enhance the public understanding of this difficult question and to explain how FHFA has approached the matter."

WHAT HE MEANT:

I'd rather sound like i'm glad for the chance to educate the public than like someone who's been getting heat for weeks now - heat that's finally getting to me.

WHAT DEMARCO SAID:

"I set the context by reviewing FHFA's legal responsibilities as conservator."

WHAT HE MEANT:

I took over Fannie and Freddie after Republicans and so-called "centrist" Democrats privatized them - an act which destroyed them when their greedy executives behaved like sheep and followed the irresponsible example of Wall Street's banks.

And I'm continuing to interpret my role as strictly one of restoring them to fiscal balance, not as that of someone who as a government official must also ensure they succeed in the mission for which they were created - which, as one of their websites tells us, is to "Meet the needs of the mortgage market by making homeownership and rental housing more affordable; Reduce the number of foreclosures; Helping families keep their homes."

That part doesn't interest me.

WHAT DEMARCO SAID:

"Clearly, many households got over-extended financially. Some accumulated debts they couldn't afford when hours or wages were cut or jobs were lost. Others withdrew equity from their homes as house prices soared. Others bought houses at the peak of the market, often with little money down, perhaps in the belief house prices would continue to climb ..."

WHAT HE MEANT:

... and they got what was coming to them. Bailing out these irresponsible so-and-so's would reward the undeserving - although it wasn't unreasonable to bail out the banks that persuaded them to do all the things I described, and which inflated the values of their homes and used deceptive booking to persuade many of them to do it.

WHAT DEMARCO SAID:

"Yet there are other Americans who did not do these things. There are families that did not move up to that larger house because they weren't comfortable taking the risk. Perhaps they had to save for college or retirement, and did not want to invest that much in housing."

WHAT HE MEANT:

So why rescue the gamblers and freeloaders? Of course I don't have any data to prove that struggling homeowners did anything wrong, but I have something better: ideology. With ideology you don't need proof.

WHAT DEMARCO SAID:

"And there are people working multiple jobs, or cutting back on the family budget in many ways, to continue making their mortgage payments through these tough times. Many of these families are themselves underwater on their mortgage, even though they may have made a sizeable down payment."

WHAT HE MEANT:

Your heroes, the very Administration that's demonizing me, only seems to be proposing that we help people who have actually gone delinquent on their mortgages. But that's not fair to all the underwater homeowners who haven't gone delinquent.

(He's got a point: From recent remarks on C-SPAN it's clear that HUD Secretary Shaun Donovan is focused only on reducing principal for delinquent borrowers and not anyone else. That's an approach which helps irresponsible banks but leaves the vast majority of duped homeowners high and dry - even when homeowners were duped into taking out loans that were too big by a bank that used dishonest appraisers. That's not fair - and suggests greater concern for bankers than for homeowners.)

WHAT DEMARCO SAID:

"Indeed, the majority of those most hurt by this housing crisis did nothing wrong - they were playing by the rules but they have been the victims of timing or circumstance or poor judgment."

WHAT HE MEANT:

I'm an ideologue, but I'm not a complete dick.

WHAT DEMARCO SAID:

"The first modification program the Enterprises use to evaluate a borrower is the Administration's Home Affordable Modification Program, or HAMP."

WHAT HE MEANT:

You know HAMP, don't you? That wildly unsuccessful program, the one that's helped banks and shafted a lot of homeowners? The one that's run by Tim Geithner, the guy who says I'm the problem?

If Geithner and the Administration are doing such a great job, then you should be pleased to know we're going right along with them. But if we're eff-ups, then they're eff-ups too.

WHAT DEMARCO SAID:

"While mortgages owned by other financial institutions or held in private label mortgage-backed securities have a much higher delinquency rate than those owned or guaranteed by the Enterprises, the Enterprises have been leading national foreclosure prevention efforts."

WHAT HE MEANT:

We're a government enterprise, and we're running circles around the private sector when it comes to meeting our goals. There are some functions that government performs better. (Wait! That came out the wrong way. I didn't mean to say that!)

WHAT DEMARCO SAID:

"Fannie Mae and Freddie Mac own or guarantee 60 percent of mortgages outstanding but they account for only 29 percent of seriously delinquent loans ... "

WHAT HE MEANT:

And your pals in the White House aren't exactly sweating the banks over this stuff, are they? Just poor old Ed.

WHAT DEMARCO SAID:

"Foreclosure prevention efforts are not the only form of assistance to borrowers. For borrowers who are current on their loan and not in imminent default, FHFA worked with Treasury and the Enterprises to develop the Home Affordable Refinance Program (HARP)."

WHAT HE MEANT:

Like I was saying, Timmy Geithner's not carrying his weight around here. Why don't you liberals go sweat Timmy for a while and give me a break?

WHAT DEMARCO SAID:

"In the original HAMP, principal forgiveness has always been permitted, but was rarely used."

WHAT HE MEANT:

That's Geithner. G-E-I-T-H ...

_______________

DeMarco then provides some reports and statistics. He also suggests that their previous attempts to analyze the problem were inadequate and offers a glimpse of their new corrective methodology - methodology which still looks to me like it will understate the problem (e.g. he says they'll lower FICO scores for modeling purposes from what they were at the time the loan was issued - but only by 100 points, which doesn't seem like nearly enough to reflect the reduced circumstances of many underwater and struggling homeowners).

DeMarco continued to insist that his primary, if not only, responsibility is to cut Fannie and Freddie's losses. But that position was undercut by the fact that he acknowledged that relieving principal as the Administration has requested would save his enterprises $1.7 billion. Yet he says he's still studying the issue.

DeMarco's right about one thing: it's wrong to step in only when a loan is delinquent. Personally, I agree with Stephen Lerner: All eleven million underwater homeowners should be helped. That's been my position for a while now.

There may be as strong an economic case for helping them as there was for helping Wall Street - and morally the case is much, much stronger. On a practical note, not helping them creates the threat of increased delinquency that DeMarco says he's worried about - although he would probably not endorse this solution.

Sadly, the Administration doesn't appear to endorse it either. Until they do there will always be a structural flaw with anything they propose - a flaw which DeMarco has found and will probably continue to press them about.

One other point: Fannie and Freddie, and therefore the taxpayer, don't own all of these loans. They own some, and they guarantee others with taxpayer money. And every solution discussed so far uses taxpayer money to rescue banks from the fiscal consequences of their own bad behavior. That's a pattern that needs to change.

DeMarco wound up his remarks with these words (we now resume our closed captioning):

WHAT DEMARCO SAID:

"FHFA remains committed to working with the Administration and Congress on these difficult questions, recognizing our shared objective of preventing avoidable foreclosures, minimizing taxpayer losses, and bringing a greater measure of stability to housing markets across the country."

WHAT HE MEANT:

Asking banks to take responsibility for their actions in the mortgage market? That's not on my to-do list - and it doesn't seem to have much of a place on the Administration's, either.

WHAT DEMARCO SAID:

"Thank you for inviting me here today."

WHAT HE MEANT:

It sure beats talking to that Cummings guy. Now will you people please go bother Geithner for a while?

Tell Obama: Fire DeMarco

Robert Borosage — Wed, 14 Mar 2012 11:51:04 -0400

Two weeks ago we called on top housing finance regulator and Bush administration holdover Edward DeMarco to reduce mortgage principal for struggling homeowners. “Move or be removed,” we said. Thousands of you responded.

But it’s not just us. The head of the Mortgage Bankers Association, the Congressional Progressive Caucus, and the Bloomberg News editorial board have all told DeMarco this month: Quit stalling and take action to reduce principal.

Yet he refuses to listen to reason. If he won’t be the solution, it’s time to stop letting him be the problem.

Click here to tell President Obama: Fire housing regulator Edward DeMarco and replace him with a recess appointment.

DeMarco shouldn’t even be in this job. President Obama nominated someone else to lead the Federal Housing Finance Agency. But Senate Republicans refused to give the President’s nominee an up-or-down vote, leaving DeMarco as “acting director.”

It’s time to stop letting conservatives dictate housing policy and sabotage the economy.

Fair-minded experts from across the ideological spectrum agree: Reducing the principal of mortgages for struggling homeowners will save taxpayers billions, keep people in their homes, help families make ends meet and bolster the overall economy.

Even the major banks have figured this out and agreed to make principal reduction a key part of the recent foreclosure fraud settlement.

Yet DeMarco won’t budge. He is stopping progress on some 20 percent of underwater mortgages, which are owned by Fannie Mae and Freddie Mac, and regulated by DeMarco's FHFA. He won’t move, so it is time to remove him.

The President has the power to right this wrong. He has used recess appointments before to stand up to obstructionist conservatives. Now he needs to act again. And he needs to hear from us. It is time to move.

Members Of Congress Join Activists In Demanding Homeowner Relief

Isaiah J. Poole — Wed, 07 Mar 2012 15:17:45 -0500

Key voices on Capitol Hill today echoed the message that underwater homeowners need the principal on their mortgages reduced, and that the government official responsible for keeping that from happening should either change his position or step down from his post.

Principal reduction is the the critical fight going on in the housing front right now, and members of the Congressional Progressive Caucus, the financial reform group New Bottom Line, and other grassroots organizations gathered outside the Capitol to challenge the head of the Federal Housing Finance Agency, Edward DeMarco: Move on principal reduction or be removed.

Their call echoes our own campaign calling on DeMarco to get out of the way of the relief homeowners need, which has generated several thousand messages that have done directly to DeMarco's office. Click here to send your message.

DeMarco's opposition on this issue affects nearly 12 million Americans in homes financed through Fannie Mae or Freddie Mac who owe more on their mortgage than their homes are worth. One of them is Rose Gudiel, who was at the Capitol representing the Alliance of Californians for Community Empowerment. Facing foreclosure, she resorted to organizing a demonstration and was arrested—along with her aging, disabled mother—before she was granted a loan modification by her bank. However, as she described it, this modification was merely a “Band-Aid, as my house is still under water and it will continue to be under water.”

On Tuesday, President Obama announced a program designed to help homeowners refinance their homes at lower interest rates. That is a helpful step for many homeowners, but for the millions of homeowners who share Gudiel's situation, that only solves a small part of the problem. Today’s housing market has seen prices fall an astonishing 33 percent since 2008, more than the 31 percent price decrease that occurred during the Great Depression.

"The families that are here today represent millions and millions of home owners who just can't wait any longer," said Rep. Jan Schakowsky, D-Calif. "They deserve aggressive action from the FHFA to make sure their mortgages are affordable. There have been dozens of members of Congress who have met repeatedly with Ed DeMarco, the head of FHFA, including our resident expert, Congressman Brad Miller, and each time he has not reacted as we have asked him; he has done nothing and he has been a thorn in the side of the president and Congress."

"Right now in Arizona 48 percent of the homeowners—nearly half—are underwater and facing the prospect of losing their homes, facing the prospect of foreclosure," said Rep. Raul Grijalva, D-Ariz., co-chairman of the Congressional Progressive Caucus. "Meanwhile the Federal Housing Finance Agency has failed to require those servicers, those mortgages, not only in Arizona but across the country to reduce that principal."

Schakowsky said that principal reduction would likely benefit homeowners more than any other weapon in the FHFA's arsenal, and with financial incentives now made available to lenders through the Treasury Department, "FHFA has more reason than ever to take immediate action. And so we are simply tired of waiting for answers for our communities and for our constituents."

DeMarco is a Bush administration holdover who is still in his position because Republicans in the Senate blocked the person President Obama nominated as his replacement. Some progressive activists have been urging President Obama to make a recess appointment in defiance of Congress, as he did in choosing the head of the Consumer Financial Protection Agency and filling vacancies at the National Labor Relations Board.

"It is time now for the president just to say: 'Edward DeMarco, you are fired,'" Schakowsky said.

Assistance from Farbod Khadkhoda

More DeMarco Outrage: You Won't BELIEVE Who He's Considering for Fannie CEO

Richard Eskow — Tue, 21 Feb 2012 00:42:36 -0500

The other day we appeared on Sam Seder's program, The Majority Report, to discuss the radical-right ideology of Edward DeMarco, a Bush appointee who became Acting Director of the Federal Housing Finance Agency (FHFA) and continues in that role because Congress won't confirm President Obama's nominee.

As we wrote last week, DeMarco is single-handedly blocking relief for millions of struggling homeowners and is using deception to justify his actions. He refuses to allow Fannie Mae and Freddie Mac, the two government-sponsored enterprises he now directs, to reduce principal or even interest rates. Some underwater homeowners are paying as much as 7 percent interest, while loans are now available at 4.3 percent.

LISTEN

Hear Richard Eskow on "The Majority Report" discuss Federal Housing Finance Agency acting director Edward DeMarco's role in blocking real mortgage relief to families facing foreclosure or who are financially under water.

DeMarco deceived lawmakers by suggesting it would cost $100 billion to write down mortgage principal while, as we wrote last week, his own agency's estimates show that it would probably save more than $28 billion.

It gets worse. Even in the days since we taped this interview the DeMarco train has continued to ride the housing market off the rails. An academic has studied DeMarco's insistence on increasing the Fannie/Freddie financial portfolio - which he says has no bearing on his refusal to do more to help homeowners - and has concluded that "there is a very significant conflict of interest" which DeMarco and others have understated.

DeMarco's team has invested roughly $5 billion of Freddie Mac's $650 billion in "reverse floaters" which are essentially bets that the homeowners who aren't being helped by DeMarco's team will never get helped. That conflict of interest is actually understated, said Christopher Mayer of Columbia Business School, because these "floaters" are derivatives which link back to $26 to $30 billion in mortgages. That makes the amount of mortgage loans subject to this conflict five to six times what was originally believed.

It gets even worse. Adding insult to injury, Fannie Mae is currently hunting for a new CEO. Which names are at the top of the list? One of them is Fannie Mae's current Chief Counsel, Timothy Mayapoulos. What did Mayapoulos do before he joined Fannie Mae? He was chief counsel for Bank of America in 2008, when BofA was neck-deep in a wave of foreclosure fraud and other criminal activity. Bank of America has signed a number of multimillion dollar SEC settlements, and paid $410 million to settle charges that it illegally processed debit card transactions out of order in order to maximize overdraft fees.

That happened on Mayapoulos' watch.

But Bank of America's former top lawyer isn't the only candidate that DeMarco and his team are considering. Another candidate is David Stevens, CEO of the Mortgage Bankers Association. What does the Mortgage Bankers Association do? For one thing, it owns and operates MERS Inc., the shell company that is central to many cases of foreclosure fraud and deception. For another, it's the organization whose previous CEOs lectured homeowners on the immorality of walking away from underwater properties - while walking away from its own.

That's the kind of CEO that Edward DeMarco thinks should be handling the taxpayers' money and carrying out Fannie Mae's mission "to keep money flowing to mortgage lenders, to help strengthen the U.S. housing and mortgage markets, and to support affordable homeownership."

And that's why Edward DeMarco has to go.

How Citibank Dumped Lousy Mortgages on the Government

OurFuture.org Staff — Thu, 16 Feb 2012 21:59:03 -0500

Edward DeMarco: The Ideologue Who's Holding Homeowners - And the Economy - Hostage

Richard Eskow — Mon, 13 Feb 2012 19:37:27 -0500

Close your eyes and imagine:

The year is 2027. President Peace N. Love lost his re-election bid three years ago,after the disaster created by his military and intelligence cuts turned millions of Americans into homeless refugees.

His successor quickly appointed General Cathy Common-Sense (USMC, Ret.) to be Secretary of Defense. but Congress is controlled by President Love's party and refused to confirm her. So President Love's appointee, Sunshine Harmony Rainbow III, is still in charge at the Pentagon.

Defense Secretary Rainbow has halted all attempts to defend the homeland. "We're saving billions of dollars for the taxpayer instead," Secretary Rainbow tells Congress, "thanks to our secret plan. Maybe," the Secretary adds helpfully, "maybe we can spend the money learning to love one another." Soon it's discovered that Secretary Rainbow has misled Congress and the "plan" is really costing billions.

How do you think conservatives would react? How would voters react to a public servant like Sunshine Harmony Rainbow III?

Meet Edward J. DeMarco, the "Secretary Rainbow" of America's housing crisis.
_____________________

It's 2012. Irresponsible banking actions devastated the economy, driving millions out of their homes and leaving Americans with three-quarters of a trillion dollars owed to bailed-out banks for nonexistent property values.

Fannie and Freddie followed Wall Street's crazy behavior, rather than leading it. But that, plus the irresponsibility and greed of their 'privatized' executives, made it necessary for taxpayers to bail them out and take management control away from the failed private sector.

The housing crisis wasn't an act of God or an accident of fate. It was caused by radical conservatism and compliant 'centrism' that pushed deregulation - the economic equivalent of demilitarization - and stripped oversight agencies of their power. Deregulation is an impractical fantasy, which is why voters rejected it in 2008.

So why are the radical ideologues of this failed philosophy still controlling our fate?

FHFA: The Mortgage Pentagon

One agency, the Federal Housing Finance Agency (FHFA), has the power to dramatically change the situation. It controls Fannie Mae and Freddie Mac, which taxpayers repurchased and bailed out after they were destroyed by 'privatized' mismanagement and Wall Street greed.

Fannie and Freddie are behind more than half of the mortgages in the country. If the FHFA directed them to do so they could issue principal reductions, negotiate lower interest rates, push refinancing deals through the system, and dramatically reduce foreclosures.That would do far more than last week's settlement deal can ever hope to accomplish - without Congressional approval, with a stroke of its executive's pen.

But Congress has refused to appoint President Obama's nominee, Joseph Smith. Smith, as you might imagine from previous Obama appointments, is a centrist choice who should have been entirely non-controversial. He's a highly qualified and competent choice who has worked for banks as an attorney as well as having served as a regulator.

Smith isn't an ideologue - but Edward De Marco and his senior managers are. DeMarco's the Acting Director of the FHFA. He's still in charge because, three years after he was elected, Obama has been unable to get his choice approved.

A.W.O.L.

Like "Defense Secretary Rainbow" in our little story, De Marco refuses to carry out his agency's assignment for ideological reasons. The Defense Department's mission is to protect the American people from attack, and the FHFA's mission is to protect American homeowners - and in so doing, help the economy as well.

But instead of making it easier for homeowners to get relief, De Marco and his lieutenants are making it harder. Outrageously, they're even paying a financial manipulator millions in taxpayer money to bet billions against the same homeowners.They're betting that these homeowners can't refinance, while at the same time making it harder for the to do it..

The more these homeowners lose out, the more money the financial guy makes.

Wait. It gets worse.

Nothing For Money

As a letter from Reps. Elijah Cummings and John Tierney reveals, a former FHFA employee testified that there was a pilot program in principal reduction but "was terminated by senior officials at Fannie Mae who were 'philosophically opposed' to the concept of reducing principal."

If so, then these DeMarco appointees are also "philosophically opposed" to the mission of their own institution.

DeMarco didn't reveal the existence of this program or its termination in his Congressional testimony. He also misled Congress and the public when he said that principal forgiveness for all (underwater) mortgages would cost "almost $100 billion," since $100 billion is the estimated total of all underwater principal, not just the amount that would be reduced for distressed homeowners.

Another FHFA study showed that not reducing principal on these mortgages would cost more than $100 billion, as Cummings and Tierney noted, while yet another showed that a well-designed principal reduction program would actually save taxpayers $28 billion.

DeMarco didn't mention those studies, either.

Who Is Edward DeMarco?

DeMarco's a career bureaucrat who joined FHFA under George W. Bush and was named Acting Director by Obama in 2009. The FHFA is an independent agency, so both the White House and DeMarco claim that he can't be fired. But DeMarco is still obligated to carry out his agency's mission - and to speak truthfully to his ultimate employers, the American people. (He has refused to speak with reporters or respond to press inquiries on a number of occasions.)

DeMarco defends his unwillingness to carry out his duties by claiming that principal reductions for underwater homeowners - some of whom are still paying seven percent interest or more for nonexistent home value, when the prevailing rate is as much as three points lower - "would not meet (the FHFA's) responsibilities as conservator of Fannie and Freddie." He told Congress that "FHFA has a statutory responsibility to preserve and conserve the enterprises’ assets."

What agency on Earth has a greater responsibility to not spend money serving its purpose than it does to do its job? It seems absurd, doesn't it? DeMarco's suggesting that not doing anything is a greater obligation for his agency than carrying out the function for which it was created.

Reverse Mission Creep

When he talks about "statutory responsibility," DeMarco is presumably referring to a provision of Housing and Recovery Act of 2008 establishing the FHFA, which says that "in exercising any right, power, privilege, or authority as conservator or receiver ... the Agency shall conduct its operations in a manner which ... maximizes the net present value return from the sale or disposition of such assets."

But this is only one provision is a massive bill, one which reads like it was designed to address conservatorship for private-sector Federal home loan banks. Fannie and Freddie have an overarching objective which those banks don't have, which were the purpose for which they were created. That purpose is not to maximize asset value but to serve the public interest by helping homeowners.

Even James Lockhart, his Bush-appointed predecessor at the OHFEO (which became the FHFA), agrees with the assessment of Administration-friendly critics like Larry Summers that DeMarco is interpreting his mandate too narrowly.

What is the real purpose behind Freddie Mac and the FHFA?

Freddie's mission, clearly stated on its website, is "to stabilize the nation's residential mortgage markets and expand opportunities for homeownership and affordable rental housing ... (and) provide liquidity, stability and affordability to the U.S. housing market." The website lists Freddie's three key functions as follows:

Meet the needs of the mortgage market by making homeownership and rental housing more affordable
Reduce the number of foreclosures
Helping families keep their homes

The FHFA's mission in overseeing Fannie, Freddie, and the Federal home loan banks is laid out on its website, too. "to promote their safety and soundness, support housing finance and affordable housing, and support a stable and liquid mortgage market."

The phrase "saving the taxpayer money" cannot be found on either the Freddie Mac or FHFA website.

Ideology

But it's much too generous to say that DeMarco has interpreted his mandate "too narrowly." Even by that artificially constricted standard, DeMarco's refusal to permit principal reductions is an abrogation of his responsibility that's likely to cost taxpayers tens of billions of dollars.

Why? Why would an anti-spending bureaucrat insist on making such a costly decision? Perhaps DeMarco and his colleagues, like too many misguided Washingtonians, thinks that helping underwater homeowners would "reward the undeserving."

Few of their peers had the same compunctions toward Wall Street billionaires, of course, and there's ample evidence that these homeowners were deceived - by a bank-driven bubble, by mortgage brokers who misled them while banks "looked the other way," by deceptive appraisers who inflated their home's value, and by the widespread bank-fueled myth that "real estate values will always go up."

Even if you accept the wacky notion that an agency's highest obligation is to avoid executing its own function, however, DeMarco's rationale still doesn't wash. If DeMarco really believes that "asset management" and expense reduction is his prime responsibility, banks negotiate principal reductions all the time - for corporations. A sound fiscal manager would do the same thing here.

Besides, if DeMarco's prime responsibility is fiduciary, then he shouldn't let his moral judgments - sound or otherwise - interfere with the execution of his responsibility.

DeMarco also seems to be in an unseemly hurry to re-privatize Fannie and Freddie, despite the disastrous results the last time around. Consider former Fannie Mae CEO Daniel Mudd: An investigation concluded that he fostered an"arrogant and unethical corporate culture, where Fannie Mae employees manipulated accounting and earnings to trigger bonuses for senior executives."

Based on his actions, DeMarco apparently thinks those were the good old days.

Hostages

What other explanation is there? DeMarco's appointees are hurting their organizations - and the taxpayer - because they are "philosophically opposed" to carrying out their own mission statements.

It appears that the housing agency - and therefore the entire real estate market, and our whole economy - is in the grip of a conservative "Secretary Rainbow," an anti-government ideologue who would rather subvert his agency's mission in pursuit of a small-government agenda.

America's underwater homeowners, and its economy, are being held hostage to Edward DeMarco's ideology.

Dereliction

The actions of DeMarco and his appointees aren't just wrong. They're a subversion of their own duties.

Edward DeMarco has failed to carry out his responsibility as head of the FHFA. Intentionally or not, he has also misled Congress and the public, witheld vital information, and failed to answer questions from the press or the people's representatives in a timely fashion.

As Reps. Cummings and Tierney wrote:

" ... (N)ew information ... calls into serious question the accuracy and completeness of your response, as well as your motivation for continuing to oppose principal reduction programs even when they have the potential to save American taxpayers billions of dollars."

Those are serious charges. But then, not performing your duty is pretty serious too.

Rainbows

Given his aversion to candor, we can only speculate about Mr. DeMarco's motivation. But both public testimony and his actions themselves suggest that he holds fairly radical right-wing views that are well outside the mainstream. That's certainly his right, just as it's every American's right to believe that military action is morally wrong.

But a pacifist would be a poor choice for Defense Secretary, and an apparent anti-government ideologue is a poor choice to lead the FHFA - especially when that ideologue appears to play fast and loose with the facts.

All of which raises the question: Why is Edward DeMarco still in this important post? We need leaders to solve our housing problem. Instead, this responsibility has been left in the hands of an ideologue whose deregulatory dreamworld is made up of nothing but rainbows.