Krugman: Fire Ed DeMarco (who?)
Last night it looked like the Federal Housing Finance Agency, which is responsible for Fannie and Freddie as well as the Federal Home Loan Banks, might be on the verge of allowing principal reduction on 500,000 borrowers. The proposal had been opposed by the head of the FHFA, Ed DeMarco, a Bush appointee who stood behind his position in opposition to the principal reduction on the grounds that they would cause losses at the Government Sponsored Enterprises (Freddie, Fannie, FHLBs).
The report last night (ht Jared Bernstein) described reporting by a WSJ housing reporter:
…a new analysis by the regulator suggests that taxpayers could actually benefit from the move, according to people briefed on the findings.
But today Ed DeMarco pushed aside this evidence to refuse any principal reductions (even though very stringent criteria were included to limit the ability of borrowers to get into the program by defaulting even though they could make their mortgage payments, what is described as ‘strategic default’). It’s not really clear what basis he provides for his decision except that it is anathema to his conservative principles. The FHFA mission is:
to provide effective supervision, regulation and housing mission oversight of Fannie Mae, Freddie Mac and the Federal Home Loan Banks to promote their safety and soundness, support housing finance and affordable housing, and support a stable and liquid mortgage market.
So unless he can argue that a program that would benefit taxpayers (who are providing the backstop to the GSEs debt) would be outside of the FHFA mandate, which has pushed Paul Krugman over the edge:
I don’t know what DeMarco’s specific legal mandate is. But there is simply no way that it makes sense for an agency director to use his position to block implementation of the president’s economic policy, not because it would hurt his agency’s operations, but simply because he disagrees with that policy.
This guy needs to go.
I can’t say I disagree either.
UPDATE: The Treasury tweets: “FHFA’s own analysis shows principal reduction at Fannie & Freddie could help up to half a million homeowners and save GSEs $3.6 billion”
UPDATE 2: Krugman has another post about DeMarco after reading through the full FHFA documents, and reaches the same conclusion.