The man with power over more than half of U.S. mortgages lives in a 1961 split-level brick house with a basketball hoop in the driveway and a green Subaru in the carport. The homes on Edward DeMarco’s block in a suburb of Washington, D.C., are so close together that neighbors see into each other’s windows. This surprised several dozen demonstrators, one in a vampire costume, who visited in September to demand he quit his job as acting director of the Federal Housing Finance Agency. “My home is better looking than this,” said Catrese Tucker, a Massachusetts toll collector whose house is in foreclosure.
As the overseer of mortgage giants Fannie Mae (FNMA) and Freddie Mac (FMCC), DeMarco, 52, has been criticized by homeowners and lawmakers who want more aid for troubled borrowers, even as the government-run companies subsist on $190 billion in taxpayer life support. Congressional Republicans and Democrats and President Barack Obama want to wind down and replace Fannie and Freddie, yet they haven’t agreed on how. That makes DeMarco the only official in Washington actively working to shrink the two companies. “The FHFA under the leadership of Acting Director DeMarco is slowly but surely enacting housing finance reform without the guidance or consent of Congress,” says Isaac Boltansky, a policy analyst at Compass Point Research & Trading. “That’s due in part to the complete inability for Congress to find any consensus.”
Fannie Mae and Freddie Mac buy mortgages from lenders and package them into securities on which they guarantee payments of principal and interest. This takes mortgages off banks’ books and frees up funds for lenders to make new loans. The companies, which own or back $5.2 trillion in mortgages, were on the brink of insolvency in 2008 after investing in risky loans. In what was supposed to be a temporary solution, the government stepped in with a financial lifeline and put the newly created FHFA in control.
Under DeMarco, the agency has raised the fees Fannie and Freddie charge investors for guaranteeing payments on mortgage-backed bonds; it also plans to further raise fees in states where loan defaults are most costly, such as New York and New Jersey. The idea is that higher fees make it easier for private mortgage financiers to compete for business, reducing Fannie and Freddie’s dominance of the market. In addition, the agency is pushing the formerly competing companies to synchronize their operations and is ensuring that they cut their investment portfolios by 15 percent a year.
DeMarco has been focused on Fannie and Freddie for decades. With a Ph.D. in economics from the University of Maryland, he began scrutinizing the companies in 1986 as a research fellow at the General Accounting Office. In a 1990 report he concluded that the companies needed much closer federal supervision “to keep emerging problems from imposing losses on taxpayers.” In 2006 he became deputy director at the Office of Federal Housing Enterprise Oversight, the predecessor to FHFA. He began running FHFA in an acting capacity after director James Lockhart left in 2009.
DeMarco is best known for one controversial position: He has resisted forgiving debt on loans backed by Fannie and Freddie, which he says would encourage struggling homeowners to stop paying their mortgages in hopes of getting a break. In February, Treasury Secretary Timothy Geithner tried to persuade him to change his mind by offering to reimburse Fannie and Freddie for as much as two-thirds of the cost of debt forgiveness. At the end of July, DeMarco released an analysis concluding that taxpayers were likely to lose money. The government-sponsored enterprises would continue to be barred from reducing loan principal, he decided.
In the aftermath of that decision, calls for Obama to replace DeMarco came from a diverse group that included members of Congress, New York Times columnist Paul Krugman, the United Steelworkers, and even the Sierra Club. “I well understand that housing finance in general and those two companies in particular attract a great deal of political interest, and understandably so,” DeMarco says. “The approach we take here is we try very hard to be apolitical about it.”
Democrats say DeMarco doesn’t care enough about families in danger of losing their homes. In one meeting last year on Capitol Hill, he earned the displeasure of Senator Barbara Boxer (D-Calif.), who has been pushing FHFA to expand aid to homeowners. “He didn’t have any motivation that I could see to help people,” Boxer told National Public Radio. She called it “the worst meeting I’ve had in my life.”
DeMarco says his efforts to protect investors in mortgage-backed securities have been mischaracterized as sympathy for corporate interests. “Mortgage-backed securities are critical elements in the investments of our retired citizens that have bond portfolios and are relying on that as a source of income,” he says. “We’re thinking, ‘This isn’t some huge hedge fund that’s at risk here. This is citizens across the country.’ ” FHFA did make it easier this year for borrowers who owe more than their homes are worth to refinance by expanding eligibility for the government’s Home Affordable Refinance Program.
DeMarco’s future will be decided after the presidential election. So far, Republicans have blocked the Obama administration’s attempts to replace him. DeMarco, meanwhile, has no plans to leave. “My approach from the beginning has been, as long as I’ve been asked to have this responsibility, to carry it out in the best way I can,” he says. “I always envisioned myself as a career official, and I still am a career official.”