New York Attorney General Eric Schneiderman and Massachusetts Attorney General Martha Coakley have formed a nine-state coalition to urge the Barack Obama administration and Senate leaders to oust the head of the Federal Housing and Finance Agency.
By not allowing Federal National Mortgage Association and the Federal Home Loan Mortgage Corporation to write down the principal of underwater home mortgages, acting FHFA director Edward DeMarco has made the federally backed mortgage giants a “direct impediment to our economic recovery,” Schneiderman charged in a statement Monday.
Known as Fannie Mae and Freddie Mac, the mortgage companies came under FHFA conservatorship after the U.S. real estate bubble burst in 2008. In 2011, the Securities and Exchange Commission charged former executives of both companies with overburdening the mortgage firms’ portfolios with subprime loans and trying to hide the amount of questionable debt the companies had taken on.
In letter on Friday, also signed by attorneys general of California, Delaware, Illinois, Maryland, Nevada and Washington, Schneiderman and Coakley urged Obama, Democratic Senate Majority Leader Harry Reid and Republican Senate Minority Leader Mitch McConnell to replace DeMarco with a permanent director willing to allow principal reductions.
“We have spent the last several years grappling with the negative impacts of subprime and predatory lending practices and the resulting foreclosure crisis,” the letter states. Unfortunately, under the leadership of…(DeMarco), Fannie Mae and Freddie Mac remain an obstacle to progress by refusing to adopt policies that will help maximize relief for homeowners.”
DeMarco, who was named acting director by President George W. Bush, has resisted reducing the principal value of loans in Fannie Mae’s and Freddie Mac’s portfolios, maintaining such reductions would hurt the mortgage companies by cutting the value of their assets.
Not so, the attorneys general coalition argues. Letting delinquent underwater homeowners pay reduced amounts that reflect the current value of the mortgaged homes would bring in more money than foreclosures and thus boost the value of the mortgage firms’ portfolios.
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