Friday, August 10, 2012

Left Side of the Aisle #68 - Part 3

Outrage of the Week: blocking relief for homeowners

A recent study revealed that more homes are underwater than originally believed; "underwater" of course meaning you owe more on your mortgage than the property is worth. Roughly 16 million borrowers owe the banks $1.2 trillion for real estate value value that no longer exists.

The United Steel Workers Union did some projections from that study and found that more than 40 million people - about 13% of the population of the US - live in those homes, with total mortgages outstanding of roughly $4.8 trillion.

One of the ideas of dealing with that has been straightforward principal reduction - put a different way, the bank or whatever financial institution holds the mortgage simply forgives some of the debt, says you don't have to pay that part back. That reduces the burden on the homeowner, allows for lower monthly payments so that the home doesn't wind up in foreclosure, and can free up money for purchases in the broader economy, with the stimulating effect that brings. A broad principal relief plan, in fact, would be the equivalent of a massive economic stimulus program.

Most economists who don't work for or depend on the big banks think it's a good idea and studies back them up. Now the O gang - which so far has been somewhere between indifferent and hostile on actually helping homeowners - says it wants to do more on principal reduction.

But oh my oh dear what a shame, it just can't. Why? Because of Ed DeMarco.

DeMarco is the Acting Director of the FHFA, the agency which took control of Fannie Mae and Freddie Mac after their bipartisan-backed “privatization” led to an swamp of greed and incompetence. And DeMarco has just said flat-out "no" to the idea of any principal reduction for any Fannie or Freddie-backed mortgage. He just won't allow there to be any such help for struggling homeowners.

Well, you can just imagine the outraged response from the White House! Why, Treasury Secretary Tim Geithner wrote to DeMarco saying “I urge you to reconsider this decision,” while at the same time insisting "you have the legal authority to make this decision." Boy, I bet that sent DeMarco reeling.

DeMarco's argument - if you can call it that - comes down to an assertion that relief via principal reduction would ultimately cost taxpayers money, even though his own agency would come out ahead. Admittedly, that loss to taxpayers is possible, although it's hotly disputed. But as Paul Krugman has pointed out, deciding if debt relief is a good policy for the nation as a whole is not DeMarco’s job.

His job is to run his agency. And his agency comes out ahead on the deal. If the executive branch decides that it's in the national interest to spend some taxpayer funds on debt relief, if the decision is made that spending taxpayer money to provide relief and some sense of security in their homes to 40 million Americans is a good thing, DeMarco has no damn business deciding on his own to refuse.

So what can be done? Fire him!

Oh, but we caaan't, comes the whine. He's the head of an independent agency. We caaan't fire him. Well, first, he's the acting director. Obama could replace him at any time by appointing a permanent director. Oh, he couldn't get his nominee through the "Filibusters'r'Us" Senate? Then do a recess appointment! Or don't fire him, transfer him! Move him to the bureaucratic equivalent of Outer Slobovia! But do not try to tell me this guy can single-handedly stand athwart national policy just because he feels like stamping his foot and saying "no" like some petulant child and be untouchable.

But nothing will happen. Nothing will happen on the policy and nothing will happen to DeMarco. Why? Because when the TARP program was first getting started, Tim Geithner was making exactly the sort of arguments DeMarco is making now. DeMarco is not challenging what has been Obama administration policy, he's expressing it. And it is an outrage.



Steven Doyle said...

But I do think debt relief for the 40 million Americans is just around the corner. Given that Romney is all for healthcare cuts which he disguises as taxpayer friendly policies, the current administration might go so far as to play the equivalent opposite card and give the homeowners their much needed financial relief by superseding DeMarco's decision and kicking him out of the game.

LarryE said...

They can't really supersede DeMarco - especially after saying in writing he has the authority to make the decision he did - but yes, there may be ways to "kick him out of the game" by replacing him. Like I said, don't try to tell me this guy is untouchable.

LarryE said...

Oh, and by the way, I allowed the link to the not-relevant debt consolidation commercial site because the comment as a whole did relate to the post.

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