High-level efforts to convince federal housing regulator Edward DeMarco to support a foreclosure prevention technique championed by the Obama administration are proving about as effective as sawing off a deadbolt with a plastic knife.
So what to do with an unelected official who won't bend to the political winds?
At a Senate housing hearing on Tuesday, DeMarco, acting head of the federal agency that effectively controls more than 60 percent of the mortgage market, once again confirmed he does not favor mortgage value write-downs, or principal reductions, for underwater homeowners. Principal reductions are the "least effective tool in the toolbox" for helping homeowners while preserving the assets of Fannie Mae and Freddie Mac on behalf of taxpayers, DeMarco said in a sometimes testy exchange with lawmakers.
Since 2009, DeMarco has run the Federal Housing Finance Agency, which oversees and effectively controls government-backed mortgage giants Fannie Mae and Freddie Mac. Momentum for widescale principal reductions has been building for more than a year, and as part of the recent robo-signing foreclosure settlement, five large banks agreed to write down as much as $20 billion on properties now worth less than their mortgages.
Last year, the Senate refused to bring to a vote the nomination of Joseph Smith, Obama's pick to head the agency. (Smith, the North Carolina banking commissioner, will head the effort to ensure that the banks comply with the terms of the foreclosure settlement.)
"All the administration can do is keep pushing," said Maryland Rep. Elijah Cummings (D), who has also urged DeMarco to change his position, in an interview on Tuesday. DeMarco "has the power."
California Attorney General Kamala Harris, and some members of Congress, have called on DeMarco to resign. But Rep. Cummings said DeMarco's resignation may not make things any better for proponents of loan write-downs. That's because the next agency bureaucrat in the line of succession would take power, not a presidential appointee, he said.
"If he is not going to do principal reduction I'd like to see him go, but that doesn't mean the next person won't have the same opinion that he has," Cummings said.
This leaves the Obama administration with two choices. Keep trying to persuade DeMarco to see things their way, or use a recess appointment to install a permanent director, as Obama did when he appointed Richard Cordray in January as head of the new Consumer Financial Protection Bureau over the strenuous objections of Senate Republicans. This second option was championed last month by a group of 28 legislators, led by California's Dennis Cardoza (D). Cummings also said he would support a recess appointment.
The White House did not immediately return a request for comment. Appointing someone without the Senate's consent would surely stir up a hornet's nest of opposition from Republicans.
In response to a request to interview DeMarco for this story, a Federal Housing Finance Agency spokeswoman referred The Huffington Post to his past statements.
DeMarco has argued that principal reductions would simply expose taxpayers -- who have already shelled out more than $160 billion to prop up Fannie Mae and Freddie Mac -- to too much risk. Instead, he has said he supports other types of homeowner aid, such as interest reductions, forbearance on making payments, and extending the term of a home loan.
Treasury Department data show that modification efforts that include principal reduction are more likely to prevent default than other loan restructurings. Many leading economists have also supported principal reduction as the most effective tool to keep deeply underwater borrowers out of foreclosure.
Even banks are getting on board. In addition to their obligations under the foreclosure settlement, banks have written down the values of about 20 percent of loans that have received modifications, New Jersey Sen. Robert Menendez (D) said at Tuesday's hearing.
DeMarco responded at the hearing that many of those loans were purchased on the secondary market at a discount, so the financial institutions making the principal reductions weren't directly taking the losses.
At Tuesday's hearing, DeMarco said he agreed with Pennsylvania Sen. Pat Toomey (R) that asking taxpayers to pick up the tab for writing down loans would provide an incentive for the 80 percent of underwater borrowers with a Fannie Mae or Freddie Mac loan who are current on their mortgage to stop making payments. This is the "moral hazard" argument.
Many lawmakers think the moral hazard is in allowing DeMarco to stay.
"'I think he could do more, but he has chosen to do less," Cummings said.