WASHINGTON -- Attorneys general from California and eight other states on Monday publicly urged President Obama to replace Edward J. DeMarco, the controversial acting regulator for housing finance giants Fannie Mae and Freddie Mac.
The state officials criticized DeMarco, who heads the Federal Housing Finance Agency, for his steadfast refusal to allow government-owned Fannie and Freddie to reduce principal on mortgages it backs to help struggling homeowners avoid foreclosure.
“Unfortunately, under the leadership of Acting FHFA Director Edward DeMarco, Fannie Mae and Freddie Mac remain an obstacle to progress by refusing to adopt policies that will help maximize relief for homeowners,” the attorneys general wrote in a letter to Obama and congressional leaders.
“In particular, FHFA’s refusal to adjust its policies to allow for principal forgiveness and forbearance stands as a major impediment to addressing the foreclosure crisis,” the letter said.
Fannie and Freddie own or back 60% of the nation’s mortgages.
The letter came amid reports Obama might be ready to nominate a replacement. Among the candidates mentioned are Rep. Melvin Watt (D-N.C.) and Phyllis Caldwell, a former Treasury official who worked on housing issues.
California Atty. Gen. Kamala Harris, who has been pushing for DeMarco’s replacement for more than a year, was among the attorneys general, all Democrats, who signed the letter organized by New York’s Eric Schneiderman and Massachusetts’ Martha Coakley.
“The time has come for the President and Congress to work together to install a new, permanent leader at FHFA that will be a partner, not an impediment, in the national effort to comprehensively address the foreclosure crisis,” Schneiderman said.
The attorneys general said that principal reductions by five large banks have been a key component to a nationwide settlement of foreclosure abuse allegations.
“When loan modifications employ principal write-downs as necessary to create an affordable modified loan, countless more families will avoid unnecessary foreclosure,” the letter said
DeMarco, a career bureaucrat who been the acting head of FHFA since 2009, has infuriated many Democrats by not allowing Fannie and Freddie to reduce the amount of principal owed by distressed homeowners.
Obama administration officials unsuccessfully have pushed DeMarco to let Fannie and Freddie reduce principal on mortgages.
DeMarco said that such a move could cost taxpayers money in the bailouts of Fannie and Freddie and also could worsen the housing market by encouraging people to fall behind on their payments to get principal reductions.
Many Republicans have cheered DeMarco’s stand, saying it is protecting the approximately $132 billion in federal money that Fannie and Freddie owe to taxpayers after the companies were seized in 2008.
Because of that Republican support for DeMarco, it would be difficult for the White House to get Senate confirmation for a nominee to replace him.
A White House spokeswoman did not immediately respond to a request for comment.