Fannie, Freddie leader’s mortgage-cutting dilemma

Kathleen Pender, San Francisco Chronicle

Ed DeMarco, the man who oversees Fannie Mae and Freddie Mac, is still mulling whether to allow permanent principal reductions on mortgages owned or guaranteed by the taxpayer-supported entities.

DeMarco, acting director of the Federal Housing Finance Agency, said he would have a decision by the end of April, but on Friday his spokeswoman said the decision “is being deferred” while the agency “continues to work on its principal forgiveness analysis.”

Fannie and Freddie allow temporary reductions – known as principal forbearance – on some underwater loans.

But DeMarco is under intense pressure to let Fannie and Freddie permanently forgive principal for some borrowers.

The pressure is coming from troubled homeowners and their advocates, the Obama administration and some legislators (mostly Democrats) and economists. They say DeMarco is taking his job – preserving Fannie and Freddie assets – too zealously and is single-handedly blocking a recovery in the housing market.

Rep. Zoe Lofgren, D-San Jose, has called DeMarco an idiot for not reducing principal. “The private sector is doing more principal reductions than the brain-dead government,” she says.

Peter Goodman, business editor at the Huffington Post, labeled him “America’s most dangerous man.”

Van Jones, co-founder of Rebuild the Dream, called DeMarco an “ideologue” in an interview on KQED radio this month.

There are at least 11 million borrowers who owe more than their homes are worth. Jones and others would like to see lenders reduce all of these underwater loans to market value.

Many not theirs

But only about 4.5 million of those are owned or guaranteed by Fannie and Freddie, and only a subset of them would be eligible for partial principal forgiveness if DeMarco allows it.

“This particular fight is about adding one more option to the modification menu for about 700,000 loans,” says Jed Kolko, chief economist with Trulia.

It would affect only homeowners with a Fannie or Freddie loan on their primary residence who are underwater and behind on their payments and qualify for the government’s Home Affordable Modification Program.
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