Issue of the week: A regulator refuses to act

last updated 8 January 2015

“Fire Ed DeMarco,” said Paul Krugman in NYTimes.com. “Do it now.” The acting director of the Federal Housing Finance Agency has defied the White House and the Treasury Department by refusing to implement a program that would lower mortgage payments for homeowners who owe more than their houses are worth. His own agency, which oversees Fannie Mae and Freddie Mac, has acknowledged that as many as 500,000 underwater homeowners could benefit, saving the taxpayer-backed mortgage giants as much as $3.6 billion by preventing defaults. Yet, incredibly, DeMarco won’t budge. He claims there’s a chance that taxpayers might lose a little money down the line. DeMarco is blatantly putting “ideology ahead of economics,” said Deborah Solomon in Bloomberg.com. He believes that lowering loan balances for troubled mortgage-holders will encourage other homeowners to default on purpose, even though the program has built-in safeguards to prevent that. In rejecting this win-win program, DeMarco is single-handedly “hindering the housing market’s recovery.”

Actually, he’s looking out for American taxpayers, said The Wall Street Journal in an editorial. If as few as 3,000 additional homeowners default in order to qualify for debt relief, the program’s projected savings will be wiped out. So he’s clearly made a “defensible judgment call,” said The Washington Post. Though taxpayers are projected to come out ahead, they would be on the hook for any losses. And it’s part of DeMarco’s job to worry about the market consequences of aiding homeowners who have “stopped meeting their contractual obligations while others have sacrificed to keep theirs.” Treasury Secretary Timothy Geithner says he’ll continue to pressure DeMarco to implement the debt-relief program. “But with signs multiplying that the housing market may be finally bottoming out,” this program “does not strike us” as worth the fight.

No surprise there, said Jonathan Chait in NYMag.com. It says everything that The Washington Post—the “voice of the Washington centrist establishment”—believes that “only a relief program that could be assured to cost the taxpayers nothing” is worth pursuing. Never mind the hundreds of thousands of desperate homeowners who might benefit. Never mind that for millions of Americans, the ongoing economic crisis is “the worst event of their lives”—a disaster that has robbed them of jobs, homes, health insurance, and self-worth. In the affluent cocoon of Washington, D.C., those with the power to act see these economic woes with “detached complacency.” For them, the suffering of the many is “merely a sad and distant tragedy.”