A band of progressive leaders joined the mounting calls to fire America's housing policy chief Ed DeMarco Thursday.
"You could have the biggest stimulus program in America by getting rid of one person," Van Jones, president and co-founder of the progressive group Rebuild the Dream and former White House adviser, said Thursday. "He is single-handedly holding up tens of thousands of jobs."
"This is the only issue that I can remember that Timothy Geithner and Paul Krugman both agree on," Jones added.
Jones joined Michael Brune, executive director of the Sierra Club, and Leo W. Gerard, international president of United Steelworkers, on a conference call Thursday to encourage President Barack Obama to fire DeMarco, who is acting director of the Federal Housing Finance Agency, which oversees Fannie Mae and Freddie Mac. DeMarco, a Bush administration appointee, has opposed offering a form of loan forgiveness, known as principal reduction, on mortgages held or guaranteed by Fannie Mae and Freddie Mac. The government-backed housing giants have a hand in about half of all outstanding mortgages.
DeMarco has argued on many occasions -- including in a recent, threatening notice to local governments that are considering using eminent domain to perform principal reductions -- that allowing this type of loan forgiveness would increase the risk of "moral hazard." DeMarco's argument is essentially that helping underwater homeowners might encourage others to default strategically in order to get help, too. DeMarco most recently rebuffed the White House's call for principal reductions in late July.
The administration has data to support the strategy. Studies have found that widescale principal reductions would save money for the government and help create tens of thousands of jobs. More than one in five borrowers are underwater on their mortgages, owing more on their home than the home is worth.
Jones said that principal reductions by Fannie Mae and Freddie Mac would enable a stronger economic recovery by giving underwater homeowners the financial freedom to buy refrigerators and sofas, remodel their homes and more. The boost in spending would pump money into the economy and create jobs, they said.
"The ability of people to write down their mortgages so that they reflect their current value would free up billions of dollars of worker opportunities to do something other than give banks money that who the hell knows goes where," Gerard said. "This is an economic opportunity to have money injected into the economy that otherwise is going to financial institutions that quite frankly don't need it."
Gerard said that principal reductions would even help banks, because homeowners who aren't underwater are less likely to walk away from their mortgages, and those continued mortgage payments would benefit the banks, reduce blight and prevent deterioration of home values.
Five major banks have already agreed to offer at least $10 billion in principal reductions to underwater homeowners as a part of the national mortgage settlement earlier this year. But some banks have been slow to pursue principal reductions so as to have time to repair their balance sheets, experts say.
Jones acknowledged that it may not be politically palatable to forgive the mortgages of homeowners whom some may view as undeserving. But the banks are to blame for the housing mess, Jones argued, and therefore should be forced to take on the risk to fix it.
"Some of these big banks ... are the ones who are not following the rules, and they're being rewarded for bad behavior," Jones said. "If we put a trillion dollars on the table to help the banks stabilize, this would be pennies to help families stabilize, and they're going to have a much more positive impact on the economy."
Jones speculated that Obama has not fired DeMarco yet because "there has been this misperception" that he could not. But Jones said that now it is "pretty clear" that Obama can replace DeMarco with another acting director through a recess appointment. Numerous news outlets have reached the same conclusion.
The FHFA did not immediately return requests for comment. A senior Obama administration official noted in an email that congressional Republicans blocked the president's nomination of Joseph A. Smith, then North Carolina's banking commissioner, to replace DeMarco without justification several months ago and that the administration supports principal reductions when appropriate.
This story has been updated to include a comment from a senior Obama administration official.