Rep. Pelosi rebukes housing chief on mortgage aid: ‘He must change course’

House Minority Leader Nancy Pelosi (D-Calif.) has broken her silence on Edward DeMarco’s resistance to principal forgiveness, accusing the nation’s top housing regulator of threatening to sink the very housing market he’s entrusted to protect.

“Targeted mortgage principal reduction has enormous potential to assist [struggling] households and stabilize the housing market,” Pelosi said in a statement.

By refusing that option, Pelosi said, “DeMarco has undermined the health of the housing market, and jeopardized the economic security of our middle class.

“With nearly a quarter of the nation’s mortgages still underwater,” she added, “he must change course.”

{mosads}The statement is a shift for Pelosi, who for months has backed the idea of reducing principal balances to help people who owe more on their homes than they are worth. Up to now, Pelosi had declined to pressure DeMarco publicly, even as a growing chorus of House Democrats has called for his resignation.

Still, even with the weight of Pelosi’s backing, Democrats shouldn’t hold their breath for changes at the Federal Housing Finance Agency (FHFA), the regulatory agency overseeing Freddie Mac and Fannie Mae that DeMarco heads. That’s because President Obama hasn’t been able to appoint his own choice of FHFA director in the face of GOP opposition in the Senate. 

Although Obama could remove DeMarco from the independent FHFA, Rep. Barney Frank (Mass.), senior Democrat on the House Financial Services Committee, says DeMarco’s replacement, by law, would be one of a small pool of deputies who share his policy positions.

“The president is constricted,” Frank said Thursday. “If he removes [DeMarco], he has to replace him with one of these other interim guys, who are all like him.”

Frank suggested Obama should replace DeMarco with a recess appointment, but not until next year — a move obviously hinging on the president’s reelection.

“The trouble now is it’s so late in the year. You could do a recess [appointment now], but who the hell’s gonna do that for two months?” Frank said. “It’s not responsible.”

The debate over the FHFA’s approach to foreclosure prevention has swirled practically since the agency was created to oversee the taxpayer bailout of Fannie and Freddie in 2008.

DeMarco maintains that his focus on lowering monthly payments without principal forgiveness strikes the right balance between helping homeowners, protecting taxpayers and avoiding moral hazard — a position he reiterated on Tuesday.

“After extensive analysis … FHFA has concluded that the anticipated benefits [of principal reduction] do not outweigh the costs and risks,” DeMarco said in a statement. “Given our multiple responsibilities to conserve the assets of Fannie Mae and Freddie Mac, maximize assistance to homeowners to avoid foreclosures, and minimize the expense of such assistance to taxpayers, FHFA concluded that [principal reduction] did not clearly improve foreclosure avoidance while reducing costs to taxpayers relative to the approaches in place today.”

Democrats and housing advocates pounced, contending that keeping people in their homes — even by forgiving some loan debts — would stabilize the housing market and pay dividends for Fannie, Freddie and taxpayers alike.

“He says, ‘Look, I can’t just look at what happened to Fannie and Freddie, I have to look at the broader case of the taxpayers,’ ” Frank said of DeMarco. “But he stopped short. The broader case is the whole economy.” 

Obama’s Housing Secretary Shaun Donovan amplified that message Thursday, saying there’s “clear evidence … that principal reductions benefit homeowners and neighborhoods and benefit the taxpayer and the economy more broadly.”

“We believe and the president believes that the decision Edward DeMarco made is wrong,” Donovan told reporters, “and we’re urging him to reconsider.”