Principal reduction has been a sticky enough topic for Ed DeMarco. It just got even stickier.

The director of the Federal Housing Finance Agency announced his opposition to the tactic that is sometimes used to avoid costly foreclosures on July 31, defying Treasury Secretary Timothy Geithner. The announcement may have come as no surprise given that last year President Obama tried unsuccessfully to dump DeMarco, the man tasked with overseeing government-backed mortgage giants Fannie Mae and Freddie Mac.

Now, some administration allies and liberal commentators are calling for the president to finish the job.

Demarco backed his controversial position by arguing that the financial benefit to taxpayers from principal reductions would be unsubstantial, while introducing "moral hazard" into the housing market. Progressive commentators and administration officials are anything but convinced.

Nobel prize-winning economist and New York Times columnist Paul Krugman wrote in a blog post, subtly titled "Fire Ed DeMarco," that the FHFA director was mistaken on both the economics of the proposed principal reduction program and on his job description:

"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."

Treasury Secretary Timothy Geithner also expressed criticism over DeMarco's decision. Claiming that DeMarco had omitted details from his letter to Congress, the Treasury Secretary stated that principal reductions would provide "help to a significant number of troubled homeowners, help repair the nation's housing market and result in a net benefit to taxpayers," in a competing letter released to the public. Geithner also wrote that DeMarco's action wasn't "the best decision for the country."

But DeMarco's not alone in his opposition to principal reductions. Several high ranking Republican members of Congress, including Senator Bob Corker (R-TN), Representative Darrell Issa (R-CA) and Representative Spencer Bachus (R-AL) have come to the embattled agency director's defense. The American Bankers Association has also offered its support.

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Below are the people who support and oppose Ed DeMarco's decision not to reduce mortgage principal:

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  • Pro-Principal Reduction

  • Paul Krugman, Nobel Prize Winning Economist

    Nobel Prize-winning economist and New York Times columnist has repeatedly called for FHFA director <a href="http://krugman.blogs.nytimes.com/2012/07/31/fire-ed-demarco/" target="_hplink">Ed DeMarco to be fired</a> over his his opposition to principal reduction. In addition to arguing that principal reductions would benefit the overall economy, Krugman told his readers that "deciding whether debt relief is a good policy for the nation as a whole is not DeMarco's job."

  • Timothy Geithner, U.S. Treasury Secretary

    Treasury Secretary Timothy Geithner stated that principal reductions would help up to 500,000 homeowners and save taxpayers up to $1 billion, in <a href="http://www.huffingtonpost.com/2012/07/31/ed-demarco-principal-reduction_n_1724880.html" target="_hplink">a letter he wrote to Ed DeMarco. </a> He also wrote that DeMarco's resistance to principal reductions was not "the best decision for the country, because, as we have discussed many times, the use of targeted principal reduction by the GSEs would provide much needed help to a significant number of troubled homeowners, help repair the nation's housing market, and result in a net benefit to the taxpayer."

  • Rep. Elijah Cummings (D-MD)

    Rep. Elijah Cummings is less than thrilled by Ed DeMarco's decision not to provide principal reductions. Cummings wrote in <a href="http://www.huffingtonpost.com/2012/07/31/ed-demarco-principal-reduction_n_1724880.html" target="_hplink">an email</a>: <blockquote>"It is incomprehensible that Mr. DeMarco would reject the chance to save up to a billion dollars in taxpayer funds while helping nearly half a million homeowners stay in their homes," Cummings said. "He should immediately withdraw this reckless and misguided letter and start following the law Congress passed."</blockquote>

  • James Lockhart, Former Chairman Of The Federal Housing Finance Agency Chairman

    President George W. Bush's Chairman of the Federal Housing Finance Agency, James Lockhart (seated to the far right), has argued that the FHA ought to experiment with principal reductions, <a href="http://thehill.com/blogs/on-the-money/1091-housing/225101-cummings-housing-regulator-fhfa-wasting-taxpayer-money-by-refusing-principal-forgiveness" target="_hplink">the Hill reports.</a> "Foreclosure is not the answer. ... We're destroying neighborhoods with foreclosures."

  • Sen. Richard Durbin (D-IL), Senator Majority Whip

    Senate Majority Whip Richard Durbin (D-IL) told reporters that he believed DeMarco's decision was "short-sighted" and "an abdication of his responsibilities, " <a href="http://thehill.com/blogs/on-the-money/banking-financial-institutions/241343-fhfa-opts-against-principal-mortgage-reductions" target="_hplink">the Hill reports.</a> "The alternative to principal reduction is foreclosure -- a disastrous outcome for homeowners, taxpayers and the American economy. It is way past the time for leadership to stabilize our real estate market."

  • Shaun Donovan, Secretary of Housing and Urban Development

    Secretary of Housing and Urban Development, Shaun Donovan, has urged the use of principal reductions to prevent foreclosure, <a href="http://thehill.com/blogs/on-the-money/1091-housing/225101-cummings-housing-regulator-fhfa-wasting-taxpayer-money-by-refusing-principal-forgiveness" target="_hplink">the Hill reports.</a>

  • William Dudley, President Of The New York Federal Reserve

    William Dudley, president of the New York Federal Reserve, argued for the development of an earned principal reduction program for borrowers who are underwater but still making mortgage payments, <a href="http://www.newyorkfed.org/newsevents/speeches/2012/dud120106.html" target="_hplink">In a speech to the New Jersey Bankers Association. </a>

  • Christine Lagarde, International Monetary Fund Managing Director

    International Monetary Fund managing director, Christine Lagarde, argued that the U.S. should implement some form of mortgage relief, including principal reduction, in <a href="http://www.huffingtonpost.com/anna-cuevas/imf-lends-support-to-loan_b_1447133.html" target="_hplink">a speech she delivered at the Brookings Institute earlier this year.</a>

  • President Obama

    The Obama administration has long supported principal reductions, arguing that such write-downs would reduce delinquencies, help 11 million underwater borrowers and help get the housing market back on track, <a href="http://www.reuters.com/article/2012/05/10/us-usa-housing-donovan-idUSBRE8491DW20120510" target="_hplink">Reuters reports.</a> Under DeMarco's directorship, the FHFA blocked the White House's idea for home-energy improvement when it told firms not to participate, <a href="http://www.washingtonpost.com/politics/edward-j-demarco/gIQAK9StKP_topic.html" target="_hplink"><em>the Washington Post</em> reports.</a> President Obama attempted to replace DeMarco with North Carolina banking commissioner Joseph Smith in 2010, only to be rebuffed by Senate Republicans who refused to confirm Smith, leaving DeMarco in place.

  • Anti-Principal Reduction

  • Rep. Darrell Issa, House Government Reform And Oversight Committee Chairman

    House Government Reform and Oversight Committee Chairman, Rep. Darrell Issa (R-CA), wrote a letter to DeMarco urging the FHA director to "carefully evaluate relevant information prior to making a decision that could cost taxpayers billions if the government were to pay down the principal value of underwater mortgages for select homeowners," <a href="http://thehill.com/blogs/on-the-money/1091-housing/225383-house-republicans-urge-housing-regulator-to-remain-steadfast-on-principal-reductions" target="_hplink">The Hill reports.</a>

  • Rep. Spencer Bachus (R-AL), Chairman Of House Financial Services Committee

    Chairman of the House Financial Service Committee, Rep. Spencer Bachus (R-AL), told reporters that Ed DeMarco stood up for "the best interests of the American people" by rejecting principal reduction, <a href="http://www.nytimes.com/2012/08/01/business/us-agency-bars-fannie-and-freddie-from-reducing-principal.html" target="_hplink"><em>The New York Times</em> reports.</a>

  • Sen. Bob Corker (R-TN)

    Sen. Bob Corker (R-TN) <a href="http://www.corker.senate.gov/public/index.cfm?p=News&ContentRecord_id=f3d4c62d-0f70-42fc-b485-99d0bb6b05b4" target="_hplink">thanked Ed DeMarco</a> for "making his decision based on objective analysis and with the taxpayer in mind."

  • American Bankers Association

    ABA executive vice president on mortgage policy, Bob Davis, announced the association's support for Ed DeMarco's rejection of principal reduction, <a href="http://thehill.com/blogs/on-the-money/banking-financial-institutions/241343-fhfa-opts-against-principal-mortgage-reductions" target="_hplink">the Hill reports.</a> "As FHFA's research illustrates, principal reductions do not measurably help troubled borrowers avoid foreclosure, yet increase the cost to taxpayers at a time when our nation's fiscal situation is already strained."

  • Edward DeMarco, Federal Housing Finance Agency Acting Director

    Acting director of the Federal Housing Finance Agency, Ed DeMarco, announced to Congress that he would <a href="http://www.huffingtonpost.com/2012/07/31/ed-demarco-principal-reduction_n_1724880.html" target="_hplink">not permit mortgage giants Fannie and Freddie Mac to assist struggling homeowners by reducing their principal.</a> In a letter DeMarco sent to Congress, the acting director stated that he did not believe that there would be a substantial financial benefit to the taxpayer and that reducing principal would introduce "moral hazard" into the housing market. "This could give borrowers who are current on their mortgages a message that the government endorses forgiving a portion of mortgage debt if hardship can be demonstrated, creating a very broad incentive for underwater borrowers to seek ways to become eligible." Under DeMarco's directorship, the FHFA blocked the White House's idea for home-energy improvement when it told firms not to participate, <a href="http://www.washingtonpost.com/politics/edward-j-demarco/gIQAK9StKP_topic.html" target="_hplink"><em>The Washington Post</em> reports.</a> President Obama attempted to replace DeMarco with North Carolina banking commissioner Joseph Smith in 2010, only to be rebuffed by Senate Republicans who refused to confirm Smith, leaving DeMarco in place.<a href=" Under DeMarco's directorship, the FHFA blocked the White House's idea for home-energy improvement when it told firms not to participate, a href="http://www.washingtonpost.com/politics/edward-j-demarco/gIQAK9StKP_topic.html" target="_hplink"emThe Washington Post/em reports./a President Obama attempted to replace DeMarco with North Carolina banking commissioner Joseph Smith in 2010, only to be rebuffed by Senate Republicans who refused to confirm Smith, leaving DeMarco in place.a href="http://www.huffingtonpost.com/peter-s-goodman/ed-demarco-fannie-freddie-principal-reduction_b_1336190.html" target="_hplink"http://www.huffingtonpost.com/peter-s-goodman/ed-demarco-fannie-freddie-principal-reduction_b_1336190.html/a" target="_hplink"> leaving DeMarco in place.</a>