(TheNicheReport) -- The Obama administration supports the idea of forgiving the excessive principal amounts owed by many American mortgage borrowers, but the head of the Federal Housing Finance Agency (FHFA) vehemently disagrees. Edward DeMarco, the acting director of the FHFA, does not believe that President Obama's plan to use taxpayer funds to help homeowners avoid default and foreclosure is a good idea. Mr. DeMarco is also in charge of overseeing the operations and financial health of Fannie Mae and Freddie Mac, the mortgage investing giants that were bailed out by taxpayer funds after the peak of the global financial crisis in 2008.
This is not the first time that Mr. DeMarco has expressed doubt about mortgage forgiveness programs. When the top five mortgage lenders in the United States executed a settlement agreement with several attorney generals over dubious foreclosure practices, they agreed to offer mortgage write-downs to underwater borrowers. These are homeowners who owe significantly more on their mortgages than what their properties are actually worth.
Mr. DeMarco's Rationale
Between Fannie Mae, Freddie Mac and the Federal Housing Administration (FHA), more than sixty percent of all mortgage loans in the United States are guaranteed against default by the government. Under the mortgage forgiveness proposal by the Obama administration, taxpayer funds would be used to write down principal amounts on underwater mortgages with the intent of making them equitable and giving borrowers a break. This principal reduction plan is the latest in a string of programs that the current administration has implemented to stabilize the housing market.
Ever since being confirmed acting director at the FHFA, Mr. DeMarco has been pressured to keep Fannie and Freddie in reasonable financial health. He believes that principal reductions would actually be too risky and expensive for the government-sponsored entities, and in the end for the American taxpayers. Mr. DeMarco also believes that there are sufficient programs in place to assist borrowers.
Opposition to Mr. DeMarco
Some lawmakers and even Treasury Secretary Timothy Geithner are not in agreement with Mr. DeMarco's assessment of mortgage write-downs. Mr. Geithner has looked at figures provided by Mr. DeMarco, and in his opinion the benefit to taxpayers on principal reductions would be about $1 billion. Mr. DeMarco insists that the benefit would actually be $500 million, but only as a result of a best-case scenario. The funds for these write-downs would come from the Troubled Asset Relief Program (TARP) fund, which is currently at about $700 billion.
An opinion piece on the Wall Street Journal published on August 1st pondered if the Executive branch could actually remove Mr. DeMarco from his position at the FHFA. The conclusion was that it would be a risky political move.