He’s the head of the Federal Housing Finance Agency, which oversees Fannie Mae and Freddie Mac, the quasi-public agencies that have financed about half of all residential mortgages in the United States.
Why is Edward DeMarco important right now?
The Obama Administration has been trying to persuade DeMarco to allow Fannie and Freddie to do the same thing that private banks are currently doing: offer debt forgiveness to borrowers who have stopped making payments on their mortgages.
There are several very good reasons for Fannie and Freddie to do this. It would help people stay in their homes, thereby stabilizing the housing market and preventing a whole generation of middle class homeowners from falling into poverty. It would boost consumer spending, because a nationwide record level of housing debt is keeping people from spending money on other things. Consumer spending accounts for more than two-thirds of all economic activity, so offering debt forgiveness to homeowners would help the economy recover.
It would also save taxpayers a lot of money. When people default on a Fannie or Freddie mortgage, taxpayers will never collect the value of that entire debt. If defaulters are offered debt relief, most of them would be able to resume making payments on their loans. According to the Federal Housing Finance Agency’s own calculations, taxpayers would save at least $1 billion if Fannie and Freddie offered debt forgiveness.
And the Obama Administration made it easier for DeMarco to say “yes” by offering Fannie and Freddie additional incentives totaling $2.7 billion to do it.
But last week DeMarco said “no,” and the reason he gave is both spurious and unrealistic. DeMarco, a conservative Bush appointee, said that, if Fannie and Freddie offered debt forgiveness, borrowers who are currently making payments but are underwater on their loans (the value of their homes is less than the outstanding balances on their mortgages) would stop making payments in the hope of qualifying for debt forgiveness. This is referred to as “strategic default.”
This is standard right-wing, Republican bullshit. It stems from the notion that people are inherently greedy, and that poor people in particular will do anything–even if it’s stupidly self-destructive–in order to get a government handout. Actually, the reverse is true: rich conservatives have proved themselves to be greedy beyond belief and have always been obscenely quick to line up for government largess, as the Bush administration proved. While the rich can take subsidies and government contracts without batting an eye, the poor must be scourged of any hope for government assistance in their time of need.
Private banks have offered debt forgiveness now for several years without seeing a surge of new defaults. In fact millions of American families have made the choice not to strategically default in the face of a record fall in home values. Why? Because defaulting would ruin their credit histories. It could also affect their ability to get jobs, as more employers now run credit and background checks on their employees (yes, poor people have to work for a living, unlike the rich). And then there’s pride. Sociologists report that most people place a high value on their ability to pay their own way and will resist default, even when it would make more financial sense for them to enter bankruptcy. DeMarco and his ilk have it exactly backwards.
Unless, of course, they’re talking about American corporations. Strategic defaults or bankruptcies are quite common in the business world. The upper management of a company can make the decision to take an ailing company through bankruptcy, where they can downsize, layoff employees, and sell off assets to pay a portion of the company’s debts. Management negotiates with banks, bondholders, vendors and other lenders over who gets paid and how much, and whether the lenders will forgive any of the company’s debt. Many corporations emerge from bankruptcy intact, having negotiated their debt down to a more manageable level. But DeMarco and his Republican allies don’t want average Americans to have that same ability.
Barack Obama has been trying to replace DeMarco with his own appointee, but for the last three years Senate Republicans have blocked the vast majority of Obama’s nominations out of partisan squabbling and gamesmanship. It’s time voters punished the Republicans at the polls for their hypocrisy and contempt.