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