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Meet the Obscure Federal Regulator Who’s Not Helping Homeowners

Our reading guide on the head of the regulatory agency that oversees Freddie Mac and Fannie Mae — who’s putting profits (and repaying taxpayers) ahead of homeowners. 

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Federal Housing Finance Agency Acting Director Edward DeMarco testifies before the House Financial Services Committee's Oversight and Investigations Subcommittee on Dec. 1, 2011. (Chip Somodevilla/Getty Images)

Last week, ProPublica and NPR raised questions about a risky investment strategy at Freddie Mac that would pay off if homeowners stayed trapped in expensive mortgages. It's just the latest example of how government-owned Freddie Mac and Fannie Mae have frustrated many by not putting homeowners first.

Fannie and Freddie are required to help homeowners while earning profits so they can pay back the taxpayers who bailed them out. Here is our guide to the little-known federal regulator, Edward DeMarco, ultimately in charge of the two companies. You may have never heard of him, but as The Washington Post put it, he's "the most powerful man in housing policy."

The basics

In the summer of 2008, as part of a larger economic stimulus bill amid the subprime mortgage crisis, President George W. Bush created the Federal Housing Finance Agency, combining several agencies overseeing housing policy, and increasing regulation of government-sponsored enterprises like Fannie and Freddie. When the government bailed out Fannie and Freddie a few months later, the FHFA took charge of them.

DeMarco, a lifelong regulator, was named the acting head of the FHFA roughly a year after the bailout when his Bush-appointed predecessor stepped down. Obama nominated a consumer-friendly replacement for DeMarco in October 2010, but Republicans blocked him. (Republican opposition to Obama's nominee for DeMarco's successor stemmed in part from concerns that he would push banks and others too far to help homeowners, unfairly rewarding reckless borrowers.)

As head of the FHFA, DeMarco has a three-part mission: to promote the soundness of Fannie and Freddie, and to support affordable housing and a stable and liquid mortgage market (in other words, to expand access to home ownership loans and make it easier to buy and sell mortgages).

The last two goals, though, can clash with the fact that under the bailout, DeMarco is the "conservator" of Freddie and Fannie, meaning he has to protect their finances for the benefit of their shareholders. (And the majority shareholder is now the federal government.) According to The Washington Post's Brad Plumer and Ezra Klein, there is "a conflict tucked deep into DeMarco's job description: The head of the FHFA is stuck between the narrow needs of Fannie and Freddie and the broader needs of the housing market."

DeMarco has focused almost solely on that first goal, telling Congress many times that "as conservator, FHFA has a statutory responsibility to preserve and conserve the enterprises' assets." In plainer terms, he told NPR last week that his role is to "make sure Fannie Mae and Freddie Mac undertake activities that don't cause further losses for the American taxpayers."

DeMarco has strongly asserted his independence, insisting that he is promoting needed fiscal discipline. (He did not respond to our latest requests for comment on his role with the FHFA).

Clashes with Congress and Obama

Democrats and Obama administration officials have been frustrated with DeMarco, saying the FHFA's narrow focus on Fannie and Freddie's health has hurt the housing market.

The Obama administration has repeatedly tried to push principal reduction — reducing the size of a borrower's mortgage — as a way to help homeowners, especially those with homes worth less than their mortgages. But as ProPublica and others have reported, time and again, Fannie and Freddie wouldn't participate: a crippling problem, since the two companies own or guarantee about half of the country's mortgages.

Last month, the administration unveiled yet another plan to encourage principal reduction, but a former administration adviser called DeMarco "the boulder" in the way of making it happen.

DeMarco says principal reduction could cost taxpayers $100 billion. Some economists counter that while principal reductions might lead to a short-term hit for Fannie and Freddie, it would ultimately result in fewer underwater mortgages, fewer foreclosures and a healthier housing market — all good for Fannie and Freddie's bottom line.

On another administration plan, to allow more borrowers to refinance at lower rates, DeMarco shifted somewhat toward the White House's position. He agreed to lift some fees on refinancing and make it easier to qualify. Freddie Mac told ProPublica in a statement that it has helped more than 830,000 families refinance, but as we noted, critics say that the refinancing effort could be helping millions more.

As DeMarco told Politico, he's been no "particular friend" of banks. He brought a massive lawsuit against 17 banks, alleging fraud over $200 billion in toxic mortgages sold to Fannie and Freddie. The case is ongoing.

DeMarco is also charged with helping Fannie and Freddie go gently into the night. As part of their bailout, the two companies are supposed to wind down their operations. And just as DeMarco has resisted Democratic calls for more aggressive help for homeowners, he's also pushed back against Republican calls to spin off the companies more quickly. He's also rejected GOP plans to cap executive pay at Fannie and Freddie.

Why he's still there

Last week, DeMarco described his job as a "balancing act." It's certainly thankless. While Democrats have called for DeMarco's head, the FHFA is an independent agency, meaning the Obama administration can't just get rid of him over policy disputes such as his stance on refinancing or principal reduction. He could also be replaced if Obama decides to offer another nominee and the Senate confirms the choice. Barring that, DeMarco will likely remain where he is for some time, walking his own line on Fannie and Freddie's contradictory mission.

Why does the fhfa sue 17 banks for mortgage fraud, then tell its underwater homeowners that there underwater problem is just due to “free market” conditions, and not all the fraud? Its either a fraud problem for both or no fraud at all. It the banks sells a home to my neighbor who cant afford it and then they foreclose on the home and drive my homes value down them I’m just as affected (if not more) by the fraud as the investors. Multiply that situation times millions of people and you can see why some of us live in areas where we are literally 100’s of thousands of dollars underwater.  FHFA should be doing principal reductions and adding those costs to all the fraud lawsuits.

thanks for the article…....to me it appears that our regulators have sold u out the public interest (and should be held civilly and criminally liable for same) just as our governments appear to have done the same.

Here is the story of how government and regulators in Canada have sold out the public investment protections to the highest bidder:

first video is two minutes:

http://www.youtube.com/user/investoradvocate?feature=mhum

Stephanie Palmer

Feb. 6, 2012, 4:59 p.m.

Why wasn’t he one of the people replaced during the recess?

elizabeth allen

Feb. 6, 2012, 5 p.m.

Eric Schniederman, Beau Biden and other AG’s need to go after this guy. We cannot permit these banksters to get away with the crisis in our economy, they caused. I have children and friends who are losing their homes, not through any fault of their own. They could afford their mortgage, were paying them, until the economy crashed and they lost their jobs. These people are truly the gangster class among us, we cannot let them off the hook, regardless of what political party you belong too…this is all about our future and our childrens future. Proscecute, arrest and jail the banksters…

Thank you pro publica for posting his picture. I printed his picture, then wadded it in a ball, and threw it in the proper recepticle. This is a preview for where he is really going to go. Where is he going to go?
Answer: Universal Garbage Bin! TRUE and SO!

THANK YOU MR. DEMARCO!  As a taxpayer I am thrilled that someone is looking out for me.  Bad economies happen and people lose jobs.  It is not the government’s responsibility to make sure they don’t have to meet the obligations of a legal mortgage contract they signed on to.  People have always had to meet mortgage payments even in good economies.  Why is a bank not entitled to foreclose when a customer defaults?  The taxpayer should never be put on the hook in this case!  Life is full of risks.

Jawaralal Birnbaum

Feb. 6, 2012, 6:42 p.m.

Fairly snide tone to this piece, which lacks the substance and care of other pro public work.  Major problem:  really lite reporting or “analysis.”  You are kneading concerns around for years.  No news.  No new conclusions.  One step removed from cable TV bloviation.

It sounds like this guy is just trying to do his very difficult job

I guess the citizens are too blame according to republicans. Let me tell you this. My daughter put down $80,000 on her home…she got laid off from a stockbroker office. In 6 months all savings gone and no job in sight. She not only lost the $80,000, but all her mortgage payments and the equity…walked away with nothing. That is her fault? No. Its the economy and the robber barrons on Wall Street. Thank God there are no indictments for Bank ofAmerica, Wells Fargo and JP Morgan. Send the banksters to jail…prosecute them. My daughter didnt have a fanni or freddie…she had Bank of America. YOUR home is NOT a risk. If you can afford your home, make your payments and get laid off…due to bad economy, you still OWN that house. Turns out she had to leave and they sold her $200,000 home for $80,000…so who made out there. Like ole Mitt said, “let him go bankrupt”. then the uber rich can buy them for a song and rent them back to you…republicans truly hate the american people.

shelley in phoenix

Feb. 6, 2012, 8:14 p.m.

I couldn’t get past the 1st paragraph.  Do you really think it’s an accurate reflection that people are really “frustrated”.  Are you kidding me??? I would say that people are really pissed off, and feel like their getting screwed and have absolutely no power.  Because unless they are one of the people with the power to make a change, they don’t have any power.  Congress, and the people/entities they are protecting, are the ones who have the power, and they are the ones making the money… they have no incentive to change and are deeply motivated to keep the status quo.

Hypatia08@gmail.com

Feb. 6, 2012, 9:48 p.m.

Shelley, yes, we are pissed off, getting screwed, but we DO have power!  We’re just not using it.  We need to organize to run decent people for Congress, instead of throwing up our hands and letting the incumbent whores get re-elected,

So few people are politically aware and active, that the incumbents get a free ride back on the gravy train.  I’m not underestimating the power of money like the Koch Brothers and Karl Rove and their ilk throw into a Senate or House race.  They can buy a lot more ads than we can.

But we can organize community meetings; use the social media; write letters to the editor (yes, I know; sounds futile, but not if the volume is so great that even those media whores have to pay attention.)

(Apologies, BTW, to honest sex workers for comparing them to the likes of Congress!)

There is no reason that the government or anyone else has the right to take from some to buy others a house. The taxpayers who were forced to pay into Freddie and Fannie deserve to get their money back before the homeowners get a house.

Carola Von H.

Feb. 6, 2012, 10:16 p.m.

The email promo for this piece invites readers to meet the regulator who’s putting “paying back taxpayers” ahead of homeowners. Many of those taxpayers are renters. I can hear them chorusing “go regulator!”

Banks had better write down principal to market prices or else 4 million people walk away. Strategic default en masse. If Morgan Stanley and the Mortgage Bankers Association can default on their own office buildings, why shouldn’t the little guy? If bank bondholders lose their shirts, they should have exercised more due diligence in regards to CDO exposure and MERS before committing. Does the first line of every prospectus say “investment involves risk?”

So, I just posted a comment criticizing your article and your article from last week. Amazingly, when I hit send I was informed my comment was held for moderation. I will try here, again, in a slightly different form:


Your article makes it sound like the GSEs and FHFA are merely obstinate and ignores the important role that the rule of law plays regarding their respective abilities. You might actually want to read the law rather than brushing over it (12 U.S.C. § 4617(b)(2)(B)(iv)).

The story verges on yellow journalism given that you don’t bother to explain that the GSEs are operating under a congressionally legislated conservatorship regime which requires the conservator to CONSERVE the assets of the companies for the benefit of stakeholders. While the government does own 80% of the companies preferred debt there are still public investors who own the debt and equity of these still public companies.

If the government wants to use them as tools of public policy then they should put them in receivership, legislate what they are, wipe out the capital structure and take them on the federal balance sheet. All of the whining by those who want to use them as social policy tools (against their legally required charters and the conservatorship) reminds me of precisely what got these companies into trouble.

You can’t be half pregnant yet those who want to use them as tools are arguing that they want the baby.

Thanks for the article, I am realtor working with the banks on short sale and very frustrated..

marty,if you e-mail me at .(JavaScript must be enabled to view this email address) i may be aqble to give you some insight to relieve your frustration re short sales

Our sheriff’s sale is tomorrow. Thanks BOA and Freddie Mac. We ran the numbers for you if you refinanced us at the going market rate…to no avail. Now we understand why. We could have kept our home. 13 1/2 years here, but now we’re run out due to skyrocketing health insurance premiums ($1,500/month), rising medical costs (now up to $7,000/yr out of pocket allowed), property taxes that more than doubled, the soaring cost of living, and barely a raise in over 5 years. Over $10K in uncovered medical/dental expenses last year alone. Tell us it’s our fault. Yeah, right.

Now do a story, ProPublica, on what is happening to skyrocketing rents across America. Rental units we were looking at a year ago have gone up $300-$600/month, and they’re still rising. Our health insurance premium will now cost more than our rent and still our medical debts will continue to mount. What goes next, the apartment or health insurance? We never dreamed we could be homeless, but now it is a real fear. What is becoming of America??

DeMarco is one of the few regulators/polciticians with any sense of fiscal responsibility.  So home values have dropped.  Does that mean you and me have to foot the bill for this?  Many of these people used there homes as an ATM machine, pulling cash out, taking out equity lines, etc.  Others didnt but you know what, there are no guarantees that your home cant go down in value.  If we subsidize losses for underwater homeowners, it can be justified that i must be bailed out for the drop in price on my netflix stock.  Where does the fiscal recklessness and moral hazard end?

elizabeth allen

Feb. 7, 2012, 1:59 p.m.

Home values have dropped, because they were falsely raised in the first place. You and ME are footing the bills, because the banksters who used housing as their personal ponzi scheme got off scott free. Those toxic mortgages were bundled by wall street and sold to countries like Greece, Ireland, Iceland, Spain, Portugal. Now those countries are going into default, the euro is going under, an the Euro nations are stealing the future of their people but huge unemployment, stealing their pension funds and every other criminal act they can to keep their governments going. Schneider has the indictments against Bank of America, JP Morgan, and Wells Fargo three of the worst violators. Attorney General Beau Biden has filed a case in the Court of Chancery in Delaware against these banksters. For decades mortgages were placed in the local county recorder of deeds, that is until George WAR Bush and his regulators created a phony fake corporation called MERS to “record mortgages”. They have “lost” over 3 million of them. So if your losing your house the first thing to do is “demand a copy of your mortage”, chances are they dont have a copy of it…they cant put you out of your house if they dont have a mortage to claim against!!! Also, contact your local Occupy movement. They are winning cases all over the country. They will come to your house and stand with you. In many states, when the Sherrif shows up and the occupiers are there…the sherrif leaves.  Its a stand off, but one people can win if they organize their community, their street and join the occupy movement…

Why are multifamily loans non-recourse and single family program are recourse loans?  Where is the equality in the lending products?  Why are developers and owners of low/affordable housing given a free ride while single family borrowers who are upside down in their mortgage have to beg for reform?  The policies are all wrong?  Check out Fannie Mae’s Standard DUS Mortgage fact sheet for details.

Another ProPublica liberal hack piece. Freddie Mac and Fannie Mae are already into the taxpayers for $183 billion and are easily expected to hit around $250 billion when they’re done. If allowed to do a mass principal writedown, expect to add another $100 billion to that. But that’s what I like about ProPublica and the Democrats, they’ve never met a bailout they didn’t like…especially since they’re not paying for it! And let’s not forget, the FHA is in imminent need of a bailout too. When does it end? When do good people get to stop bailing out bad decisions that other people made??? They didn’t have to take that leaser loan!!! Stupid article.

I’m always torn on this topic.

On the one hand, I really don’t care that your investment in your house is more than the value of the house.  I’ve bought many, many things over the years that have less market value than the price, especially if I bought it with a credit card.  If you did that with a house, just be happy that you have someplace to live!

(As a sidenote, I considered buying a house until someone trying to support my decision “sagely” told me that “housing prices always go up.”  When I heard some “expert” say the same thing on the news, I knew it was a bubble.)

On the other hand, the government caused this problem by “encouraging” banks to give loans to people who couldn’t afford them.  By not keeping homeowners in their mortgages, they’ll turn the suburbs into slums, which harms everybody.  And eviction means that the government owns the houses, and I have trouble envisioning any administration putting them to good use.

I also don’t like the idea of the government taxing us, then wringing its hands over how to make a profit off of the homeowners (who, by and large, are also taxpayers).

If the government wants to go into banking (which I actually support, since “free market” banking has always been a cesspool and it can’t ever be anything else, since no real product or service is provided), it should open banks instead of messing around with contradictory half-measures.

DeMarco is a hero.  “Helping Homeowners”??  Is that his job, or is it about ensuring the solvency of those companies?  Plus, shame on any dumbass who believes that homeowners are a priveleged class, or deserve a fortune of borrowed taxpayer dollars.  They’re disproportionally upper-class folks.

All the whining about Demarco is about his hesitance to SACK taxpayers with hundreds of billions of dollars, it makes me sick.  Any idea how probability and incentives work?  Like, you pay 100 people the underwater amount which would cost you almost the same as if they bailed, but only 25 or 35 actually would have.  Fundamental mathematics and finance, not required reading for those asking for more bailouts apparently.

What do you think would have happened if - as you would apparently prefer - all the investors in the dot-com bubble were reimbursed?

Except that was their money, and underwater so-called “owners” were almost 100% leveraged.  This is an outright F-ing insult to anyone who has made a significant downpayment or slaved to purchase a house.  Let the bubble buyers live with their choices.  They actively participated in the bubble, as well as the stupidity/greed that came with it. 

And FFS, stop demonizing a guy who’s going to lose his job for no other reason than keeping Fannie/Freddie from hemorrhaging an ungodly amount of money.  Sorry, but beloved snowflake homeowners aren’t deserved of anything.

Tony Geloso

Feb. 11, 2012, 1 p.m.

To elizabeth allen - 2/7/12 @ 2pm
I agree with you and would even go farther with the idea that the whole concept of having a home increase in value and thusly be able to use as an ATM is so STUPID, that it borders on mass insanity and retardation.
Some ‘einstein’ who problally teaches at one a them thar institiutions of ‘higher learning’, thought this turkey up at the behest of the thieves in 3 piece suits on Wall St. like Miltion Friedman specifically or some clone like him.
I don’t think for a New York minute that the higher ups didn’t initally incubate this and possibly find out it might develop the way it has. They needed the ‘hired help’ of economics to flesh this out down to the penny to see how much they could legally steal.   
Bad enough as that is, the ‘troops’ who actually go out an peddle these financial booby traps to justify their greasy, narrowly defined legal paramiter type mentality by trying to shift the blame, and to rid themselves of ANY responsibility or guilt, exclusively to the consumer. Part of their piece of the process is to go after people who are emotionally/financially vulnerable to a slick and ultimately overwhelming sales pitch designed to suck them in easily and leave ‘em hanging with the responsibility for the demise of it, if it craps out.
I’ve got two words for all supposed ‘professionals’ involved in this process, and it ain’t merry christmas or happy chanuka. 
Welcome to the modern world of high finance that’s no better for the consumer chances of success than a poker game or shootin’ craps.
Welcome back to ‘Amerika’, as we said in the early 70’s.

elizabeth allen

Feb. 11, 2012, 1:13 p.m.

I don’t believe this new deal with the Banks is a good deal for our citizens,but good for the bansters. Freedie and Fannie arent even included in this deal?

If the Banks had to pay back all their fraud, robo calls, foreclosing on people instead of working out a deal…they would owe us over $700 BILLION.  Now Schneiderman, and the other AG’s have the ability to go after some of these banksters, but if you think a big deal to protect the banksters AGAIN wasnt done by both parties, you need to put down your crackpipe.

Why do you think the repukes are not saying a word about this…because they whole heartily agree with it…its always about protecting the banks vs the people. We have only one shot left, the occupy movement has already taken on this issue and stopped some foreclosures….(when the sheriff and his deputy showed up and there were 10 or 20 occupiers with the homeowner.) they left. Why, because the sherriff has taken an oath to protect the citizens not the banksters, and not the mortage banksters…

After fighting this never ending battle Bank of America has beat me worst than domestic abuse could ever have. I want through every process “offered”! The last one I tried was Hardest hit program I found out it was just another scam. I was working with a group in Nov 2011 The group representing the Hardest Hit program here in IL called Bank of America with me on the line and asked for the principal on my house without the added penalties (additional 20K) During this conference call we were both told by the Rep he needed to talk to Bank of America’s lawyers and would get back to me. I had a court date of Nov 14th that I was told because Bank of America was aware I was actively enrolled in the Hardest Hit program I did not have to go to court and a new date would be issued. To my surprise and demise of my home I was found in default for not appearing.  They are placing my home for sale on Feb 20th. Myself and my daughter have no where to go in the dead of winter. I was told by a lawyer I got screwed and I was beyond help.I also am involved in the Independent review by the OCC I really have no idea where I stand if I can get help to move out etc… I can nor handle the suffering any longer. If anyone knows more about this can you please email me at .(JavaScript must be enabled to view this email address).

This article is part of an ongoing investigation:
Freddie Mac

Freddie Mac

The taxpayer-owned mortgage giant made investments that profited if borrowers stayed stuck in high-interest loans while making it harder for them to get out of those loans.

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