Democrats step up pressure for mortgage write-downs

A half-dozen lawmakers called on Obama to speak out strongly in favor of writing down the principal of mortgages that are underwater — where borrowers owe more than the property is worth — and to let homeowners refinance for the lower amount.

The lawmakers also stepped up calls for Obama to replace Edward DeMarco, the regulator of Fannie Mae and Freddie Mac, who has resisted calls for the major mortgage holders to do write-downs.

DeMarco has said that his job is to protect taxpayers who have invested $187 billion on bailouts for mortgage giants and that write-downs would cause them to absorb deeper losses.

Private lenders are no more enthusiastic at the idea; nor are Senate Republicans.

"The best way to combat the rise of foreclosures is for Fannie Mae and Freddie Mac, the largest holders of subprime mortgages, to be directed to provide straightforward principal reductions," said Rep. Yvette Clark, D-N.Y. "We can no longer afford to have this nation’s economic growth stifled by a stagnant housing market."

"Do the math," said Rep. Brad Miller, D-N.C. "The best thing for taxpayers is to reduce principal in a smart way.

"A foreclosure will cost the mortgage owners 50 to 70 percent the value of the mortgage. Which is better? To reduce the mortgage by 20 to 30 percent and have a homeowner be able to pay that, or to lose 50 to 70 percent by foreclosing?"

Rep. Shelley Berkley, D-Nev., co-chairwoman of a Democratic housing task force and a supporter of mortgage write-downs, said Wednesday she called for DeMarco "to step down months ago. He has been impossible to deal with."

A spokesman for Sen. Dean Heller, R-Nev., who faces a challenge from Berkley in this year’s Senate campaign, said, "Foreclosures are the biggest problem facing Nevada," and "we should be looking at any and all options to help solve this problem."

The fresh calls for mortgage write-downs came a day after Obama announced he would cut refinancing fees on loans backed by the Federal Housing Administration. He also offered protections to members of the military and veterans caught in the mortgage crisis or cheated by lenders.

A Federal Housing Finance Agency spokeswoman, asked about the fresh calls for DeMarco’s resignation, pointed to a Feb. 27 letter he sent to California Attorney General Kamala Harris outlining his views on principal reduction.

DeMarco told Harris the agency has analyzed principal reduction on three separate occasions and found each time that it is not as effective as existing programs to modify troubled mortgages.

He said Fannie Mae and Freddie Mac have undertaken more than 2 million transactions to help homeowners avoid foreclosure, including more than 1 million loan modifications.

In 2010, Obama nominated Joseph A. Smith, a banking regulator from North Carolina, to succeed DeMarco, FHFA’s acting director since 2009.

But Smith’s confirmation was blocked by Republicans including Sen. Richard Shelby, R-Ala., in part because he was viewed as likely to pursue a policy of mortgage write-downs that GOP leaders thought would have Fannie and Freddie absorb bigger losses.

Contact Stephens Washington Bureau Chief Steve Tetreault at stetreault@stephensmedia.com or 202-783-1760.