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By Janis Bowdler, Director, Wealth-Building Policy Project, NCLR

Yesterday, Treasury Secretary Timothy Geithner took a bold step toward guarding families’ homes from unnecessary foreclosure. He wrote an open letter in defense of principal reductions—a vital option which reduces the original amount of a home loan for struggling homeowners. Last summer, partners of the Home for Good campaign called on Secretary Geithner to make lasting improvements to the mortgage market. More than 10,000 concerned individuals sent postcards, and during a four-day call-to-action, nearly 400 people called the Treasury to urge a simple message: stop needless foreclosures; support affordable rental housing; and revive a sustainable path to homeownership. With his open letter, Secretary Geithner made a strong move in the right direction.

In an environment where the blame game is often the operative strategy for elected officials and housing stakeholders, there appears to be little that economists, advocates, big banks, and investors agree on. However, principal reduction is a solution that has cut across ideology and is considered by many to be a win-win solution. At minimum, it is an evidence-based tool for reducing foreclosures that continues to be underused, even while so many other approaches come up short. Smart servicers and lenders are on board. They use a calculation known as Net Present Value (NPV) to compare the costs associated with foreclosure to the costs of reducing principal. As analysis released by the Treasury Department shows, there is a targeted group of loans on which investors can save money in the long run by cutting a troubled homeowner’s mortgage balance to a manageable level.

Unfortunately, Federal Housing Finance Agency (FHFA) Acting Director Ed DeMarco has time and again stood in the way of implementing principal reductions as a solution. DeMarco is in charge of regulating Fannie Mae and Freddie Mac, where most of the nation’s home loans are held—and until he concedes, many families will continue to fall into needless foreclosure. In his open letter, Geithner points out that a recent study by DeMarco’s own agency shows that principal reduction decreases the chances of redefault and actually saves money, rather than increasing risk and cost, as DeMarco claims. Making the situation all the more frustrating, we—the taxpayers—are the investors in the case of loans serviced by Fannie Mae and Freddie Mac. DeMarco does us all a disservice by rejecting a key tool that could reduce foreclosures while also saving money for taxpayers.

Geithner’s public statement in support of principal reduction is cause for celebration, but DeMarco has further entrenched himself as the major obstacle to taking principal reduction to scale. The enduring housing crisis requires bold steps and true solutions. We cannot afford to be impeded by purely ideological differences—five years of that experiment have cost millions of families their homes and neighborhoods. Principal reduction is a proven and refreshing strategy for repairing the system, and DeMarco must no longer stand in the way.

Ready to see real solutions to our nation’s housing woes? Join the Home for Good campaign and tell the presidential candidates that you want their commitment to housing opportunities!

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Comment Preferences

  •  Can DeMarco be removed? n/t (4+ / 0-)
    Recommended by:
    doroma, MKSinSA, AnnieR, furi kuri
  •  How Does Principal Reduction Work Differently (3+ / 0-)
    Recommended by:
    JML9999, MKSinSA, divineorder

    from load modification? I see in the letter Geitner is saying this program would be cheaper for taxpayers than a loan modification program.

    We're paying ahead on our mortgage which means there's now considerably less principal remaining than there would have been if we'd paid the face monthly values. But this won't change our lives until we either pay off the principal or sell the house. We still owe the same monthly payment amount.

    We are called to speak for the weak, for the voiceless, for victims of our nation and for those it calls enemy.... --ML King "Beyond Vietnam"

    by Gooserock on Thu Aug 02, 2012 at 09:59:06 AM PDT

    •  "loan modification" vs "Principal Reduction" (7+ / 0-)

      loan modification adjusts the monthly payments but you still owe the original amount of money on the mortgage.

      Principal Reduction-For sake of example you borrowed $200K for a $250K house but the House value is now only 180K. Principal Reduction would at least on paper forgive the old loan and issue a new loan for $180K less any previous payments.

      The argument can be made is that these banks failed to do "Due Diligence";1990's speak for Cross T's Dot I's; when they issued the mortgage by not properly assessing the property value.


      Not blaming Bush for the mess we're in, is like not blaming a train engineer for a fatal train wreck because he's no longer driving the train.

      by JML9999 on Thu Aug 02, 2012 at 10:08:24 AM PDT

      [ Parent ]

  •  Nobody to blame but Obama. (2+ / 0-)
    Recommended by:
    divineorder, Deward Hastings

    This is what you get when you appoint a 'team of rivals' to important positions.

    Ed Demarco is a Bush era econ-bankster who should be nowhere near decisions that effect housing policies.  And Obama put him in charge of a very important regulatory agency with vast powers.

    •  He's a career civil servant. (1+ / 0-)
      Recommended by:

      He's been in the government for more than 2 decades.

      Bush filled the government with his disgusting cronies, and there are plenty of Repugs in the gov anyway, so it's impossible to weed them all out.  You promote people as was done in the past, and hope they put their civil service above their politics.  DeMarco has not and should be fired.

      But to blame this on Obama is an overshoot.

      •  Or.... (1+ / 0-)
        Recommended by:
        wilderness voice

        you can vet the people who you appoint and make the proper decisions based on their track record.  Bush appointed this assclown as head of SSA policy in 2003.  Hmmm what was Bush up to viz a viz social security a couple years after he put Demarco in charge of SSA policy?  Shouldn't that have given an indication as to what Demarco was all about?

        Or, since Demarco spent the first two years in his interim directorship with FHFA  blocking attempts to help people stay in their homes, Obama could have appointed a permanent replacement at anyone of several opportunities there were for recess appointments, no?

        Obama should be just as accountable as anyone else for his bad decisions.  I can't believe someone on this website is actually arguing 'hey, we need to trust Bush era econ-banksters and hope they place duty above politics.'  Give me a fucking break.

        •  When did he work for the banks? (0+ / 0-)

          And where did he work before 2003?

          Before you go flying off the handle at people...

          •  Where did I say he worked for the banks? (0+ / 0-)

            You don't need to work for the banks to be a bankster.  

            Another thing I don't believe...I really need to make the point that a guy who sets SSA and Fannie/Freddy policy that invariably favors banks is a bankster?  Really?

            As to your other question, he worked at Treasury and before that OMB I believe.  

            Don't reflexively make half ass excuses for shitty decisions, even those of President Obama, and you won't have people 'flying off the handle' at you, not that I was 'flying off the handle.'

            •  So he IS A CAREER CIVIL SERVANT! (0+ / 0-)

              And I'm making half ass excuses by calling for him to be fired?!   Did you even read anything I wrote?

              You really should take Bob Lafollette out of your user name, he wouldn't screw up like this.

              •  My gawd you sound just like a Republican. (0+ / 0-)

                Really?  A swipe at my screen name?  Creating a strawman argument (where did I call for him to be fired)?

                How fucking lame is that.

                You obviously don't even fucking know what the civil service is, so how 'bout STFU until you overcome your ignorance on the matter, mmmmmmkay?

      •  Further... (0+ / 0-)

        you're just wrong.  He's not a career 'civil servant.'  He's a career political appointee.

        •  Check your facts and get them right. n/t (0+ / 0-)
          •  Prove me wrong. (0+ / 0-)

            You're the one claiming he is a 'career civil servant.'  Back it up.  Show me some evidence that he applied for his jobs and won them competitively, as opposed to being appointed to his positions by politicians.

            Here's a clue.  You don't receive the title of

            Director of the Office of Financial Institutions Policy at the U.S. Department of the Treasury
            Social Security Administration Assistant Deputy Commissioner for Policy
            through the application process.

            You're really making some stupid points and taking some absurd positions that should not even need to be discussed, all in the name of defending a bad decision by Obama.

            Check my facts and get them right, puh-leaz.  I'm the one delivering facts, accurate facts at that.  You're discussing this through edict.  

  •  Hasn't the horse already largely left the (3+ / 0-)

    barn on this issue?

    Really, the time to do something was 3 or 4 years ago.

    Call me cynical, but the only reason for this being done now seems to be that it's election season.

  •  It only took him four fucking years! This has (3+ / 0-)
    Recommended by:
    divineorder, Deward Hastings, KenBee

    been suggested since the begining of Obama admin. When there was a suggestion website at the begining. There were thousands of suggestions on how to do it. No they just had to give all the money to the big banks and wish or dream that it would result in true mortgage modification. Dumbasses. Geithner is a wall street shill and should never have been put into the position he's in.

  •  DeMarco is NOT the problem, IMHO... (3+ / 0-)

    "I always thought if you worked hard enough and tried hard enough, things would work out. I was wrong." --Katharine Graham

    by bobswern on Thu Aug 02, 2012 at 10:32:08 AM PDT

    •  Yves is off the deep end. (1+ / 0-)
      Recommended by:

      I used to be a big fan of Yves, but she goes so far out of her way to blame everything on Obama, and to disagree with Krugman, she now comes across as kind of crazy.

      And she's wrong about this.  DeMarco should be fired, and Geithner should go out the door right behind him.

      I'm hoping after the election that Obama has a cabinet shakeup and Geithner is on the top of the list to get booted.

      •  Geithner had to be all but begged to stay on... (0+ / 0-)

        ...this year (by Obama). He wanted to leave in 2011. It was all made rather public, in fact.

        Yves certainly does go over the top sometimes. But, sometimes that's due to the fact that she's just fed up with the two parties, in general. (I'm not apologizing for her, because I've stated this many other times in this community, in the past.)

        The reality is that "the banks own the place" (D.C.), and that's one of the truest "bipartisan" statements of all.

        Government in this country, just like Wall Street, is quite corrupt; and, that was certainly the case BEFORE Citizens United, even though that's being used as an excuse these days.

        Citizens United had NOTHING to do with the President's appointment of Geithner, reappointment of Bernanke, or the appointments of Orszag, Summers, Emanuel, Daley, or Lew. Make no mistake about this, despite kabuki to the contrary.

        "I always thought if you worked hard enough and tried hard enough, things would work out. I was wrong." --Katharine Graham

        by bobswern on Fri Aug 03, 2012 at 08:25:19 AM PDT

        [ Parent ]

  •  Re: your call for candidate committment (1+ / 0-)
    Recommended by:
    Tell the presidential candidates that you want their commitment to housing opportunities!
    "A Presidential Candidate Willing to Get Arrested to Fight Foreclosure Abuse"  
     Dr. Stein, is Harvard educated  physician who ran against Mitt Romney once before now plans to challenge him again for President.

    Occupy Santa Fe also pointed to her comment on Dr. Jill Stein Facebook page

    Jill Stein
    13 hours ago
    Over 200 major media outlets have already published reports about today's housing rights action against Fannie Mae. Please help make sure the rest of the media establishment, and the people, know how the 2012 presidential race changed today. Direct action is coming to the ballot box. A big change is going to come.

    How did Supreme Court decision ACA help the 23 million still uncovered? Ask the 18,000 Doctors of PNHP -- they're not waiting, FORWARD now to pass H.R. 676, the “Expanded and Improved Medicare for All Act .

    by divineorder on Thu Aug 02, 2012 at 10:42:03 AM PDT

    •  Green's Presidential candidate arrested (1+ / 0-)
      Recommended by:

      at Fannie Mae office

      she says:

      Stein says she would:

          issue an executive order establishing a moratorium on foreclosures of occupied dwellings

          encourage local governments to help homeowners get out of underwater mortgages by seizing mortgages through eminent domain and letting nonprofit community development organizations—not Wall Street banks—reissue the mortgages.

      Something talked about in a diary last night

      and this in her quote is different than the San Bernadino proposal, San Bernadino was offerring a Venture Capitalist to be the middleman, she's talking about

      letting nonprofit community development organizations
      do this, a much better idea.

      From those who live like leeches on the people's lives, We must take back our land again, America!...Langston Hughes

      by KenBee on Thu Aug 02, 2012 at 03:18:16 PM PDT

      [ Parent ]

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