Elizabeth Warren, the Harvard professor, consumer advocate and candidate for US Senate in Masachusetts, said today that the Federal Housing Finance Agence (FHFA) must increase their actions on behalf of homeowners, including principal reductions, something that the agency has resisted to this point.
Warren spoke in concert with officials in Massachusetts, from Rep. Barney Frank, ranking member of the House Financial Services Committee, to Financial Services Committee members from Massachusetts Michael Capuano and Stephen Lynch, to state Attorney General Martha Coakley, in pressuring FHFA to act.
FHFA oversees Fannie Mae and Freddie Mac, which own or guarantee a majority of all home loans in the US. They have the power to modify principal, allow for expanded refinancing or increase short-sales or cash advances to homeowners for properties. But their programs have fallen short thus far, and FHFA Director Ed DeMarco, citing his mandate to conserve taxpayer funds, has been extremely reluctant to give principal reductions on GSE loans. The Administration has tried through a new HAMP policy to encourage the GSEs on principal reductions with cash incentives. So far, DeMarco has not accepted that challenge.
“The foot-dragging in Washington has stalled economic recovery and has hurt our families,” said Warren in an emailed statement. “We need a housing policy that fires on all cylinders: principal write-downs, refinancing options, cash for keys, and short sales.”
Warren also tied the foreclosure crisis to the broader economic crisis. “We must never forget that this economic crisis began one lousy mortgage at a time,” she said. “Foreclosures don’t just harm the families that lose their homes. They also have powerful effects on whole communities, depressing home values and putting a drag on local economies.”
Warren did not comment on the imminent foreclosure fraud settlement, or on what Massachusetts AG Martha Coakley, a skeptic on the settlement, should do on that.
But this just increases the pressure on DeMarco. Of all the things the Administration could do to improve the situation for homeowners, the GSE channel represents the greatest opportunity. DeMarco has held back this tide virtually by himself, because he views his mandate very narrowly. But this is a false frame.
We don’t have to choose between conserving taxpayer dollars and helping homeowners. If you take the long view, preventing foreclosures saves money. It stops the dislocation of families and neighborhoods. It prevents cascading property values for neighbors when a foreclosed home enters the picture. It means that local communities don’t have to spend taxpayer money on upkeep and prevention of blight. Bill Clinton said in a 2008 rally I attended that every foreclosure costs $250,000 to the larger economy. Unless the GSEs would have to give up $250,000 per home on a principal write-down, this is a good economic deal in the long run.
Warren speaking out reflects only the latest clash between DeMarco and politicians on this issue. And unless and until he is replaced, this will not end.