We've heard noises before that President Obama might nominate Rep. Melvin Watt (D-N.C.) to replace Ed DeMarco as director of the Federal Housing Finance Agency, the agency the regulates Fannie Mae and Freddie Mac.
I find it hard to believe that it was a coincidence that this announcement was made official right as the Congressional Budget Office released its findings that principal reduction on underwater mortgages could save taxpayers up to $2.8 billion.
DeMarco's opposition to principal reduction has been the reason behind a massive movement calling for his replacement. I find it believable that the president felt more comfortable heading into a senate confirmation process with CBO analysis backing him up fresh on everyone's minds. (Might not also hurt that there has been legislative action started calling for principal reductions too.)
Many housing advocates including the National Low Income Housing Coalition, National Community Reinvestment Coalition, and New Bottom Line, have praised the choice of Watt. But there are naysayers too:
Economist Yves Smith, for example, long a critique of bad bank behavior and federal unwillingness to stand up to it, argues that Watt may be a little too beholden to Bank of America, that he's unlikely to be confirmed, and, more seriously, that the whole focus on beating up DeMarco is a distraction from the administration's more serious bank-coddling practices, weak settlements, and reluctance to anger Wall Street.
I'm sure the activists and homeowners putting themselves on the line for principal correction would disagree with Smith that it's a red herring, and having something concrete to organize around is important even if it isn't the root cause of the problems. However, her arguments did remind me of my experience sitting in the House Financial Services Committee hearing disrupted by protesters this past March.
While I certainly didn't agree with much of what DeMarco was saying, especially the moral hazard on principal reduction arguments, it struck me that it was important to remember that he was nonetheless clearly on the progressive side of the room, certainly as compated to the committee chair, Rep. Hensarling, and his Republican colleagues, who seemed to have very little factual grasp of how the housing markets operate or the financial crisis came about. (And I'm not being partisan here, that's just the summary of who I heard saying what.)
It will be a great thing to celebrate to win principal reduction on Fannie and Freddie loans. But whoever does or doesn't replace Ed DeMarco as head of FHFA, we're going to need to keep a more complicated and deep critique of banking and housing policy alive.
(Photo by Michael Premo, CC BY-NC-ND.)
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