If one man can be described as absolutely key to solving the ongoing foreclosure crisis -- and thus not only helping millions of struggling homeowners but also stabilizing the neighborhoods where they live -- it is Edward DeMarco, head of the Federal Housing Finance Agency. The rest of the country is inching forward on tangible progress, but DeMarco could do more than anyone.
The need is as urgent now as it ever was.
There have been small glimmers of hope on several fronts. Mortgage delinquency rates have inched down a bit, though they're still about triple what they were before the collapse.
And as a result of the recent "robo-signing" settlement, several large banks have agreed to write down the principal of some troubled loans. Writing down principal is essential to any real solution to this mess: Millions of borrowers owe more than their homes are worth or are ever likely to be worth. Because many of these families are also struggling with reduced income due to the recession, they face a situation that's simply untenable. Instead of futile attempts to collect payments based on fantasy values that bear no relationship to reality, we should adjust these loans to reflect home values in the real world. That way, millions will stay in their homes, their communities will avoid the disruption of continuing waves of foreclosures, the housing market can start to stabilize and the struggling construction industry may begin to see a path forward.
In California, state officials have begun to take the lead, announcing on May 7 that they would use a chunk of federal dollars to offer principal write-downs of up to $100,000 to some of that state's troubled borrowers.
These are all useful steps, but they still leave millions of underwater families without help. The biggest chunk of those troubled loans are backed by government-backed mortgage giants Fannie Mae and Freddie Mac, which are overseen by DeMarco's FHFA. And DeMarco has thus far refused to involve Fannie and Freddie in principal reduction.
Last month, it looked like that was going to change. DeMarco agreed to speak at an April 19 symposium organized by The Greenlining Institute that focused on how to restore and protect the dream of homeownership that seems to be slipping out of reach of so many Americans. And he deserves some credit for simply showing up: He knew that this audience, heavy with housing advocates and community groups in addition to bankers and regulators, was filled with people who have questioned and challenged him and FHFA. It is always a good thing when officials are willing to reach out to folks who may be skeptical, and his willingness to stick his neck out was genuinely appreciated.
At our meeting, DeMarco said he was "deeply concerned" about these underwater mortgages. He promised that FHFA would have something concrete to say about principal reduction by the end of April. So far, so good.
But in an astonishing story published May 1, the Los Angeles Times reported two disturbing pieces of news: 1) FHFA was still working on its analysis of principal reduction and would have nothing to say until that analysis is done -- with no hint as to when that might be. 2) According to internal documents obtained by two members of Congress, Reps. Elijah Cummings of Maryland and John Tierney of Massachusetts, Fannie Mae officials had supported principal reductions back in 2009, believing that they would save taxpayers money, but a pilot program was squelched, apparently for ideological reasons.
The two congressmen are continuing to pursue the issue and have asked FHFA for all documents related to it. But a congressional inquiry shouldn't even be necessary.
The crisis has not gone away, and without meaningful principal reduction on the millions of troubled Fannie and Freddie-backed loans, it will linger for years to come.
Mr. DeMarco, we appreciate your coming to speak -- and listen -- to us and our community colleagues. But with millions of American families and their communities still in desperate straits, we need more than words.
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