AGs want head of federal housing agency replaced

WASHINGTON (Legal Newsline) -- A group of nine state attorneys general are calling for new, permanent leadership at the federal agency overseeing Fannie Mae and Freddie Mac.

The coalition, headed up by New York Attorney General Eric Schneiderman and Massachusetts Attorney General Martha Coakley, sent a letter Friday to President Barack Obama and various congressional leaders asking that the Federal Housing Finance Agency's Acting Director, Edward DeMarco, be replaced.

The FHFA is the agency that manages the two companies following the 2008 financial crisis.

The attorneys general contend that under DeMarco's leadership, Fannie Mae and Freddie Mac have been a "direct impediment to our economic recovery" by the continued refusal to give principal relief for struggling homeowners, and are calling for a new permanent leader to replace DeMarco, an appointee of former President George W. Bush.

The seven other attorneys general are California's Kamala Harris, Delaware's Beau Biden, Illinois' Lisa Madigan, Maryland's Doug Gansler, Nevada's Catherine Cortez Masto, Oregon's Ellen Rosenblum and Washington's Bob Ferguson.

"We have worked tirelessly, along with our federal, state and local partners to develop a multi-pronged approach to dealing with the foreclosure crisis. Fannie Mae and Freddie Mac should be among our partners in this effort, and leaders in the arena of loan modification best practices," the attorneys general wrote.

"Instead, they have been an obstruction. We believe that until new, permanent leadership is named to the FHFA, they will continue to stand as a roadblock to comprehensively addressing the foreclosure crisis."

Schneiderman said in a statement Monday that the time has come for Obama and Congress to work together to install a new leader at that the agency -- someone who will "be a partner, not an impediment."

In their two-page letter, the attorneys general argue that principal write-downs are a central component of a nationwide mortgage settlement reached last year, and continue to bring meaningful relief to distressed borrowers, spurring our nation's economic recovery.

Last February, 49 state attorneys general and federal officials reached a deal with five banks -- Wells Fargo & Co., JPMorgan Chase & Co., Citigroup Inc., Ally Financial Inc. and Bank of America Corp -- worth $25 billion

The agreement, which institutes new protections for homeowners and nationwide reforms to mortgage servicing standards, only covers those mortgages held by the five banks, not Fannie Mae or Freddie Mac.

Principal reduction is a form of loan forgiveness that would help "underwater" borrowers whose mortgages are worth more than their homes.

The attorneys general contend the FHFA's continued position that principal forgiveness conflicts with its goal of asset preservation is "not supported by reality."

The agency's current policy actually reduces the value of its holdings portfolio, the group argues.

"It is far more profitable for any financial institution to hold a portfolio of performing $200,000 mortgages that lets families keep their homes than a portfolio of non-performing $250,000 mortgages headed toward default," they wrote.

This isn't the first time DeMarco has come under fire.

In 2011, Harris told DeMarco to "step aside" if he wouldn't help homeowners.

The California attorney general accused DeMarco of continuing to refuse to lower mortgage loans for troubled homeowners.

From Legal Newsline: Reach Jessica Karmasek by email at jessica@legalnewsline.com.