Edward DeMarco is the beleaguered bureaucrat in charge of an agency called the Federal Housing Finance Agency. And because the FHFA is now managing Fannie Mae and Freddie Mac, DeMarco's in charge of most American mortgages. He's been the target of resignation demands for weeks. Everyone from Tim Geithner on down -- and therefore presumably the president, too -- has fingered DeMarco as the one person standing in the way of relief for millions of American homeowners.
DeMarco's still an unelected ideologue with too much power, and he still needs to go. But yesterday, after remaining silent and refusing to share some of his technical information with members of a congressional oversight committee, the previously Garbo-esque Ed DeMarco finally spoke up. His speech at the Brookings Institution was technical in nature, but to anyone with the right political or emotional closed-captioning device the message was loud and clear: Don't rush me, Mr. President -- and find yourself another fall guy.
And to anyone who's underwater on a mortgage the message was even clearer: You're not getting much help from me.
Using material from his prepared text, we now present the remarks of Edward DeMarco -- with closed captioning provided for the mortgage impaired:
WHAT DEMARCO SAID:
"I will not be announcing any conclusions today -- our work is not yet complete - "
WHAT HE MEANT (closed captioning):
What's the hurry? It's only been three years, eleven million underwater mortgages, and lost housing value that exceeds seven trillion dollars. We'll get around to it eventually. I promise.
WHAT DEMARCO SAID:
" ...but in view of the state of the public policy debate on this subject ..."
WHAT HE MEANT:
The public pressure is finally getting to me ... and maybe even to my political patron on Capitol Hill, Sen. Richard Shelby.
(Shelby's the Republican from Alabama who has abused senatorial privilege for three years by refusing to allow a hearing on Obama's nominee for DeMarco's position as head of the FHFA. That's left DeMarco in place as Acting Director for quite a while now.)
WHAT DEMARCO SAID:
" ... I am pleased to have this venue to enhance the public understanding of this difficult question and to explain how FHFA has approached the matter."
WHAT HE MEANT:
I'd rather sound like I'm glad for the chance to educate the public than like someone who's been getting heat for weeks now -- heat that's finally getting to me.
WHAT DEMARCO SAID:
"I set the context by reviewing FHFA's legal responsibilities as conservator."
WHAT HE MEANT:
I took over Fannie and Freddie after Republicans and so-called "centrist" Democrats privatized them -- an act which destroyed them when their greedy executives behaved like sheep and followed the irresponsible example of Wall Street's banks.
And I'm continuing to interpret my role as strictly one of restoring them to fiscal balance, not as that of someone who as a government official must also ensure they succeed in the mission for which they were created -- which, as one of their websites tells us, is to, "Meet the needs of the mortgage market by making homeownership and rental housing more affordable; Reduce the number of foreclosures; Helping families keep their homes."
That part doesn't interest me.
WHAT DEMARCO SAID:
"Clearly, many households got overextended financially. Some accumulated debts they couldn't afford when hours or wages were cut or jobs were lost. Others withdrew equity from their homes as house prices soared. Others bought houses at the peak of the market, often with little money down, perhaps in the belief house prices would continue to climb ..."
WHAT HE MEANT:
... and they got what was coming to them. Bailing out these irresponsible so-and-so's would reward the undeserving -- although it wasn't unreasonable to bail out the banks that persuaded them to do all the things I described, and which inflated the values of their homes and used deceptive booking to persuade many of them to do it.
WHAT DEMARCO SAID:
"Yet there are other Americans who did not do these things. There are families that did not move up to that larger house because they weren't comfortable taking the risk. Perhaps they had to save for college or retirement, and did not want to invest that much in housing."
WHAT HE MEANT:
So why rescue the gamblers and freeloaders? Of course I don't have any data to prove that struggling homeowners did anything wrong, but I have something better: ideology. With ideology you don't need proof.
WHAT DEMARCO SAID:
"And there are people working multiple jobs, or cutting back on the family budget in many ways, to continue making their mortgage payments through these tough times. Many of these families are themselves underwater on their mortgage, even though they may have made a sizeable down payment."
WHAT HE MEANT:
Your heroes, the very administration that's demonizing me, only seems to be proposing that we help people who have actually gone delinquent on their mortgages. But that's not fair to all the underwater homeowners who haven't gone delinquent.
(He's got a point: From recent remarks on C-SPAN it's clear that HUD Secretary Shaun Donovan is focused only on reducing principal for delinquent borrowers and not anyone else. That's an approach which helps irresponsible banks but leaves the vast majority of duped homeowners high and dry - even when homeowners were duped into taking out loans that were too big by a bank that used dishonest appraisers. That's not fair -- and suggests greater concern for bankers than for homeowners.)
WHAT DEMARCO SAID:
"Indeed, the majority of those most hurt by this housing crisis did nothing wrong -- they were playing by the rules but they have been the victims of timing or circumstance or poor judgment."
WHAT HE MEANT:
I'm an ideologue, but I'm not a complete dick.
WHAT DEMARCO SAID:
"The first modification program the Enterprises use to evaluate a borrower is the Administration's Home Affordable Modification Program, or HAMP."
WHAT HE MEANT:
You know HAMP, don't you? That wildly unsuccessful program, the one that's helped banks and shafted a lot of homeowners? The one that's run by Tim Geithner, the guy who says I'm the problem?
If Geithner and the Administration are doing such a great job, then you should be pleased to know we're going right along with them. But if we're eff-ups, then they're eff-ups too.
WHAT DEMARCO SAID:
"While mortgages owned by other financial institutions or held in private label mortgage-backed securities have a much higher delinquency rate than those owned or guaranteed by the Enterprises, the Enterprises have been leading national foreclosure prevention efforts."
WHAT HE MEANT:
We're a government enterprise, and we're running circles around the private sector when it comes to meeting our goals. There are some functions that government performs better. (Wait! That came out the wrong way. I didn't mean to say that!)
WHAT DEMARCO SAID:
"Fannie Mae and Freddie Mac own or guarantee 60 percent of mortgages outstanding but they account for only 29 percent of seriously delinquent loans ... "
WHAT HE MEANT:
And your pals in the White House aren't exactly sweating the banks over this stuff, are they? Just poor old Ed.
WHAT DEMARCO SAID:
"Foreclosure prevention efforts are not the only form of assistance to borrowers. For borrowers who are current on their loan and not in imminent default, FHFA worked with Treasury and the Enterprises to develop the Home Affordable Refinance Program (HARP)."
WHAT HE MEANT:
Like I was saying, Timmy Geithner's not carrying his weight around here. Why don't you liberals go sweat Timmy for a while and give me a break?
WHAT DEMARCO SAID:
"In the original HAMP, principal forgiveness has always been permitted, but was rarely used."
WHAT HE MEANT:
That's Geithner. G-E-I-T-H ...
_______________
DeMarco then provides some reports and statistics. He also suggests that their previous attempts to analyze the problem were inadequate and offers a glimpse of their new corrective methodology -- methodology which still looks to me like it will understate the problem (e.g. he says they'll lower FICO scores for modeling purposes from what they were at the time the loan was issued -- but only by 100 points, which doesn't seem like nearly enough to reflect the reduced circumstances of many underwater and struggling homeowners).
DeMarco continued to insist that his primary, if not only, responsibility is to cut Fannie and Freddie's losses. But that position was undercut by the fact that he acknowledged that relieving principal as the Administration has requested would save his enterprises $1.7 billion. Yet he says he's still studying the issue.
DeMarco's right about one thing: it's wrong to step in only when a loan is delinquent. Personally, I agree with Stephen Lerner: All eleven million underwater homeowners should be helped. That's been my position for a while now.
There may be as strong an economic case for helping them as there was for helping Wall Street -- and morally the case is much, much stronger. On a practical note, not helping them creates the threat of increased delinquency that DeMarco says he's worried about -- although he would probably not endorse this solution.
Sadly, the Administration doesn't appear to endorse it either. Until they do there will always be a structural flaw with anything they propose -- a flaw which DeMarco has found and will probably continue to press them about.
One other point: Fannie and Freddie, and therefore the taxpayer, don't own all of these loans. They own some, and they guarantee others with taxpayer money. And every solution discussed so far uses taxpayer money to rescue banks from the fiscal consequences of their own bad behavior. That's a pattern that needs to change.
DeMarco wound up his remarks with these words (we now resume our closed captioning):
WHAT DEMARCO SAID:
"FHFA remains committed to working with the Administration and Congress on these difficult questions, recognizing our shared objective of preventing avoidable foreclosures, minimizing taxpayer losses, and bringing a greater measure of stability to housing markets across the country."
WHAT HE MEANT:
Asking banks to take responsibility for their actions in the mortgage market? That's not on my to-do list -- and it doesn't seem to have much of a place on the Administration's, either.
WHAT DEMARCO SAID:
"Thank you for inviting me here today."
WHAT HE MEANT:
It sure beats talking to that Cummings guy. Now will you people please go bother Geithner for a while?
Richard (RJ) Eskow, a consultant and writer (and former insurance/finance executive), is a Senior Fellow with the Campaign for America's Future and the host of The Breakdown, broadcast Saturdays nights from 7-9 pm on WeAct Radio, AM 1480 in Washington DC.