Skip to main content

One by one, the excuses have fallen. Yet Edward DeMarco, acting head of FHFA, the agency that runs Fannie Mae and Freddie Mac, still fails to offer the most effective relief available to American homeowners struggling with mortgages held by those entities. Economists, housing experts, and members of DeMarco’s own staff have concluded that reducing to affordable levels the principal owed on at-risk mortgages is effective in reducing foreclosures and their destructive fallout. But, inexplicably, he’s been unmoved by the mounting evidence.

Two weeks ago, after hinting at a possible change of heart, DeMarco punted on the question, saying it needed more study and stating that such a policy question “should be determined by Congress.” But the evidence is too clear, and the stakes are too high, for further delay. It’s time for Mr. DeMarco to either act in the nation’s interest or get out of the way.

While many parts of our economy have gradually improved over the last several years, foreclosures are on the rise in regions around the country. The foreclosure data company RealtyTrac has predicted that one million American homes may enter foreclosure in 2012. An estimated 12 million Americans currently owe more on their mortgages than their homes are worth, meaning that millions more are at risk.

Fannie, Freddie, and DeMarco’s agency have an oversized role to play in addressing the crisis, since the entities are assumed to own or back roughly 3.3 million underwater mortgages and help set trends in the larger market. By including principal reduction among the tools they use, they could help millions of Americans save their homes while making sustainable payments toward the actual value of their property.

The American people essentially own Fannie and Freddie after a $150 billion bailout. Even before that, the entities were tasked with providing stability and affordability to the nation's mortgage finance market. FHFA’s mission similarly includes supporting housing finance, affordable housing, and a stable and liquid mortgage market, as well as promoting Fannie and Freddie’s safety and soundness.

The calls for principal reduction are growing louder, with evidence increasingly demonstrating that those interests all point toward principal reduction. It results in fewer foreclosures, as compared with alternatives like loan forbearance (delaying loan obligations) that FHFA has authorized. In addition to the obvious benefits to struggling homeowners, reducing foreclosures improves neighborhood home values, prevents abandoned and blighted properties, and saves cash-strapped municipalities the costs of upkeep and enforcement.

Many private lenders have been reducing principal obligations on their own, recognizing it’s often the best way for them to recoup their investment. Moreover, the strategy was a significant part of the Attorneys General settlement over “robo-signing” and related bank misconduct.

Reports have emerged that even FHFA’s own internal analyses show principal reduction is in the interest of both underwater homeowners and Fannie and Freddie. Documents recently obtained by the Congressional Progressive Caucus reportedly show that DeMarco’s agency studied the question in 2009, decided it was worth trying, worked with a major lender to develop a detailed pilot, and then abruptly canceled it in July of 2010 for what the Caucus says were ideological reasons.

To be sure, principal reduction is not a silver bullet. A range of aggressive solutions are necessary to address America’s foreclosure crisis, restore ravaged neighborhoods, and put our national economy back on track. Indeed, a coalition of housing and public interest groups that includes The Opportunity Agenda, National Council of La Raza, and the National Fair Housing Alliance has released a Compact for Home Opportunityhighlighting over a dozen actions that government, private industry, and individuals can take to turn things around.

Principal reduction may be only one of those actions. But it’s an important one. With a million American homes at risk of foreclosure, the time for action is now.

EMAIL TO A FRIEND X
Your Email has been sent.
You must add at least one tag to this diary before publishing it.

Add keywords that describe this diary. Separate multiple keywords with commas.
Tagging tips - Search For Tags - Browse For Tags

?

More Tagging tips:

A tag is a way to search for this diary. If someone is searching for "Barack Obama," is this a diary they'd be trying to find?

Use a person's full name, without any title. Senator Obama may become President Obama, and Michelle Obama might run for office.

If your diary covers an election or elected official, use election tags, which are generally the state abbreviation followed by the office. CA-01 is the first district House seat. CA-Sen covers both senate races. NY-GOV covers the New York governor's race.

Tags do not compound: that is, "education reform" is a completely different tag from "education". A tag like "reform" alone is probably not meaningful.

Consider if one or more of these tags fits your diary: Civil Rights, Community, Congress, Culture, Economy, Education, Elections, Energy, Environment, Health Care, International, Labor, Law, Media, Meta, National Security, Science, Transportation, or White House. If your diary is specific to a state, consider adding the state (California, Texas, etc). Keep in mind, though, that there are many wonderful and important diaries that don't fit in any of these tags. Don't worry if yours doesn't.

You can add a private note to this diary when hotlisting it:
Are you sure you want to remove this diary from your hotlist?
Are you sure you want to remove your recommendation? You can only recommend a diary once, so you will not be able to re-recommend it afterwards.
Rescue this diary, and add a note:
Are you sure you want to remove this diary from Rescue?
Choose where to republish this diary. The diary will be added to the queue for that group. Publish it from the queue to make it appear.

You must be a member of a group to use this feature.

Add a quick update to your diary without changing the diary itself:
Are you sure you want to remove this diary?
(The diary will be removed from the site and returned to your drafts for further editing.)
(The diary will be removed.)
Are you sure you want to save these changes to the published diary?

Comment Preferences

Subscribe or Donate to support Daily Kos.

Click here for the mobile view of the site