Edward DeMarco is a thorn in the side of the Obama administration. He has consistently resisted calls to pander to loanowners by forgiving principal on GSE loans. Many on the political left are calling for his head, and the Obama administration is poised to oblige them — and that’s not appropriate.
DeMarco has proven to be a thoughtful administrator who protects the interests of the US taxpayer. Of course, that’s the problem many politicians have with him. They want to raid the coffers of the treasure to buy more votes. If DeMarco is replaced by someone who will allow politicians to steal from the treasury to buy votes, it would be a travesty. Unfortunately, I am not hopeful that Conservatives have the will or the power to stop them. This is one more step toward becoming a banana republic.
White House Seeking New Regulator for Fannie, Freddie
December 10, 2012, 11:52 AM
The White House has begun preparations to nominate a new director to lead the agency that oversees Fannie Mae and Freddie Mac as soon as early next year, according to people familiar with the discussions. This would pave the way for President Barack Obama to fill what has become one of the most important economic policy positions in Washington. …
The FHFA’s current director, Edward DeMarco, took the job more than three years ago in an “acting,” or interim, capacity. He has remained in the position after the Obama administration’s first nominee for the job, Joseph Smith Jr., then the North Carolina banking commissioner, withdrew from consideration in January 2011 amid opposition from Senate Republicans. The FHFA, created 4½ years ago, has never had its own director confirmed by the Senate.
There is no reason to believe the Republicans will be any more accommodating this time around. The Left wants to appoint someone who will give loanowners free money. Conservatives are repulsed by the moral hazard and cost of such a program.
While some liberal political groups have pushed for a quick recess appointment that bypasses the need for Senate confirmation, such a move appears highly unlikely for now. …
A recess appointment would be unlikely before a nominee has had a full Senate hearing because it would risk poisoning relations with Senate Republicans during negotiations over the “fiscal cliff” and ahead of confirmation hearings for other high-level positions such as Treasury secretary, secretary of state, and chairman of the Securities and Exchange Commission.
It’s also possible an appointment of a left-wing free-money panderer will be part of the fiscal cliff compromise. 
Mr. DeMarco has become a lightning rod for criticism over the shortcomings of federal housing policy and has at times thwarted White House initiatives, including an effort to launch a targeted principal-reduction program earlier this year. Liberal political activists have called on the president to fire him (which isn’t easy to do). …
On the other hand, mortgage traders, congressional Republicans, and some industry executives have lauded Mr. DeMarco as a principled adherent to the law and steward of taxpayer dollars. Mr. DeMarco received a warm reaction from attendees at a conference hosted last week by the Securities Industry and Financial Markets Association in New York, where several panelists said they hoped Mr. DeMarco would not be replaced. …
Edward DeMarco should not be replaced. He has diligently and competently protected the taxpayer will reducing the size of the GSEs over the last three years. He has earned a reappointment to his position.
What Role Will the Government Play in a Reformed Housing Market?
Dec 6 2012, 2:50PM
Edward J. DeMarco, Acting Director of the Federal Housing Finance Agency, told members of SIFMA this afternoon that “The secondary mortgage market infrastructure that served this country for many years is broken.” It is not effective when it comes to adapting to market changes, issuing securities that attract private capital, aggregating data, or lowering barriers to market entry he said. There must be some updating and continued maintenance of the government sponsored enterprises securitization infrastructure, “and to the extent possible, we should invest taxpayers’ dollars to this end once, not twice.” …
DeMarco clearly understand the issues facing the GSEs, and so far, he has resisted all political pressure to open their coffers to politicians who want to buy votes.
The conservatorships of Fannie Mae and Freddie Mac were never intended to be long-term solutions. They were meant as a “time-out” as the market was eroding and a way to provide some stability while decisions were made about rebuilding the housing finance system. Today the government is involved in nine out of every ten mortgages so it is essential that the mortgage market transition to a more secure, sustainable, and competitive market.
Unfortunately, despite their “intended” use as a temporary market safety net, the housing market is so dependant upon these entities that it will be very hard to unwind them without causing the so-called recovery to collapse.
DeMarco said … “In the mortgage market, that means we need established rules by which everyone abides. But we also need competitive markets and market participants operating within those rules to ensure that credit is available to help families purchase homes and rent houses and apartments. A competitive private market system also ensures that such capital is efficiently allocated between housing and all other sectors.”
A competitive market? With the government currently backing about 95% of loan originations, we are a long, long way from a competitive market.
FHFA recently issued a white paper in which the development of a new infrastructure was divided into two components; the “physical” infrastructure or platform which comprises the technology that drives the existing secondary market operations and the “virtual” infrastructure, meaning the contractual provisions that govern secondary market transactions. …
While the GSE’s are working toward harmonizing requirements in their respective Seller and Servicing Guides, this is an optimal time to further consider how best to address contractual shortcomings identified during the past few years.Some of the work already underway which will fit into the various parts of a new infrastructure for housing finance are:
- The Uniform Mortgage Data Program is improving the consistency, quality and uniformity of data gathered at origination and for servicing. Common data definitions, electronic data capture, and standardized data protocols will improve efficiency, lower costs, and enhance risk monitoring.
- Settling on servicing standards will provide clarity on how troubled loans will be serviced and FHFA’s Servicing Alignment Initiation produced a single set of protocols for both GSEs which may serve as a basis for national servicing standards.
- FHFA’s Joint Servicing Compensation Initiation is considering alternatives for future mortgage servicing compensation.
- The Representation and Warranties framework long used by the GSEs did not work well under stress conditions so the GSEs have developed a new framework that will clarify lenders repurchase exposure and liability on deliveries after January 1.
- The Loan-Level Disclosures announced last year will help establish consistency and quality of data for investors in Enterprise MBS.
Those are all good initiatives. It’s somewhat surprising many of these initiatives were not in place before.
DeMarco said that there is no simple path to rebuilding the country’s housing finance system and there are still many fundamental questions about the end state of housing finance reform. There are also difficult transition issues to consider and FHFA is working to help pave that transition to whatever end state policymakers ultimately choose.
One step is to contract the GSE operations. To that end, FHFA is increasing guarantee fees and pursuing initiatives with the potential to transfer some credit risk to the private sector, a goal that most policymakers seem to agree with. While FHFA will continue to work in this area, if policymakers are serious about limiting the government’s role, more direct action may be needed to have significant near-term effects.
This is what’s already happening with the FHA. Each time the FHA raises it’s fees to ward off insolvency, they increase the cost of borrowing so much that it creates opportunity for private lending. Right now, lenders could offer second mortgages at 12% interest rates and undercut the cost structure of FHA loans. As costs move high, so do the potential returns for private capital. Eventually, lenders will start making these loans again. If the GSEs continue to raise their fees, they will create the same set of circumstances.
The most fundamental question in considering the end game for housing finance reform is what, and how big, should the role of the federal government be? This, DeMarco said, is clearly where there are diverging policy and political views, but stakeholders must start to think through this process. …
One potential place to start is what the role of the traditional government mortgage guarantee programs, like the Federal Housing Administration or FHA, should be.
We could start by lowering the conforming loan limit to reduce the overall footprint of the GSEs. This would create a void private lending could step into. Of course, that will also raise borrowing costs and potentially lower house prices as the market found a new equilibrium.
If FHA’s role in the future is defined in terms of which borrowers would have access to this program, then it should be easier to look at the rest of the market and consider questions like:
- “What is the capability and capacity of private market participants to intermediate credit for single-family housing? What functions are necessary to have an efficient market?”
- “How should standards be established and updated in the market to enhance efficiency, risk assessments, and liquidity, thereby lowering costs to borrowers and investors alike?”
- “Where do we think the market system requires prudential government oversight or limits? Have we ensured that any oversight or limits act to foster, not inhibit, competition, including fostering the full participation of small and mid-sized firms in the mortgage market?”
- “Are there remaining public policy concerns about potential market failures and, if so, are those concerns about market stability and liquidity or about social policy goals regarding homeownership?”
Politicians obsession with promoting home loanership will likely never end. Despite the evidence from other countries without government supported mortgage markets, politicians continue to believe home loanership is so desirable it’s worth any taxpayer cost.
The more I read about Edward DeMarco, the more I respect his sound judgement and good stewardship of the GSEs. It would be a shame to replace him with some political hack who will dole out taxpayer dollars so left-wing politicians can pander for votes.
Thanks, mom and dad.
In Southern California’s way-too-expensive housing market, it’s not uncommon for parents to provide the down payment or sometimes even the full purchase price for a property. It’s not clear where the money came from for today’s featured property, but the original acquisition shows no loan which means it was probably an all-cash purchase. If it was a gift from the parents, they can’t be too pleased to see that the couple borrowed $745,000 against the property and lost it in foreclosure. Oops!
- The property was purchased for $501,000 on 6/30/2002.
- On 8/25/2003 they obtained a $408,000 first mortgage.
- On 8/18/2004 the opened a $150,000 HELOC.
- On 6/26/2006 they obtained a $160,000 HELOC.
- On 7/7/2006 they refinanced with a $708,000 Option ARM.
- On 9/26/2007 they refinanced with a $745,000 first mortgage.
They quit paying in early 2011 based on the 6/13/2011 NOD. The were allowed to squat for about a year and half before the bank took it back on 10/3/2012.
I have to wonder how they managed to spend $745,000 in just over five years.
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Proprietary OC Housing News home purchase analysis
24925 BUTTERCUP Dr Laguna Niguel, CA 92677
$771,750 …….. Asking Price
$501,000 ………. Purchase Price
6/30/2002 ………. Purchase Date
$270,750 ………. Gross Gain (Loss)
($61,740) ………… Commissions and Costs at 8%
============================================
$209,010 ………. Net Gain (Loss)
============================================
54.0% ………. Gross Percent Change
41.7% ………. Net Percent Change
4.1% ………… Annual Appreciation
Cost of Home Ownership
——————————————————————————
$771,750 …….. Asking Price
$154,350 ………… 20% Down Conventional
3.36% …………. Mortgage Interest Rate
30 ……………… Number of Years
$617,400 …….. Mortgage
$144,974 ………. Income Requirement
$2,724 ………… Monthly Mortgage Payment
$669 ………… Property Tax at 1.04%
$0 ………… Mello Roos & Special Taxes
$193 ………… Homeowners Insurance at 0.3%
$0 ………… Private Mortgage Insurance
$159 ………… Homeowners Association Fees
============================================
$3,745 ………. Monthly Cash Outlays
($599) ………. Tax Savings
($996) ………. Equity Hidden in Payment
$159 ………….. Lost Income to Down Payment
$116 ………….. Maintenance and Replacement Reserves
============================================
$2,426 ………. Monthly Cost of Ownership
Cash Acquisition Demands
——————————————————————————
$9,218 ………… Furnishing and Move In at 1% + $1,500
$9,218 ………… Closing Costs at 1% + $1,500
$6,174 ………… Interest Points
$154,350 ………… Down Payment
============================================
$178,959 ………. Total Cash Costs
$37,100 ………. Emergency Cash Reserves
============================================
$216,059 ………. Total Savings Needed
The property above is available for sale on the MLS.
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25 Responses to “Head of GSEs Edward DeMarco faces replacement, unfortunately”
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If you take a look ahead at ‘where the jobs are’ and the educational requirements needed to attain them, it’s quite clear where home prices are headed.
Oh……. and keep raising those rents (LOL)
The 30 occupations with the largest projected employment growth, 2010-20
http://bls.gov/news.release/ecopro.t06.htm
If that’s right it’s completely depressing.
At least the uneducated masses will have jobs…
It would be interesting to compare that to the same charts from each decade over the last 50 years. My guess is they’d all be substantially similar. The bulk of Americans are employed in lower-skilled service-oriented jobs. That doesn’t necessarily mean “lower-paid,” but private sector unions are needed to fight for their share (public sector unions are absolutely not needed and are solely a drain on taxpayers).
el O thrives on posting misleading stats.
“It’s also possible an appointment of a left-wing free-money panderer will be part of the fiscal cliff compromise. ”
That’s an excellent and scary point. This will bookend to Bernanke’s announcement that he has increased the speed of the assimilation of the mortgage industry. Free money from the Fed.
Report: Role of Consumer Delusion in Building Recovery’s Momentum
The recovery in home sales and prices is taking shape, but will it further solidify, even in the hardest hit markets?
A Home Value Forecast report from Pro Teck Valuation Services and Collateral Analytics expressed the idea that the recovery will continue in hard-hit markets such as Sacramento, Phoenix, Las Vegas, and Riverside-San Bernardino “because prices are still lower than fundamental market drivers” such as employment.
“Home Value Forecast has been pointing out for the past year that most of the fundamental factors for a recovery in home sales activity and prices are falling in place,” said Tom O’Grady, CEO of Pro Teck. “However, the residential real estate market has always had a strong psychological component driven by consumer confidence.”
The report discussed the role of consumer sentiment in the residential market and explained how “swings” in sentiment can influence home prices.
For example, O’Grady says that in periods of “great exuberance,” swings can raise prices above sustainable values as seen during the recent bubble, or during times of extreme pessimism, swings can move prices below intrinsic values.
“When home prices are rising, home buyers assume that they will keep rising, and when prices are declining, buyers assume that they will continue declining,” O’Grady explained.
He further added rising prices “also increase homeowner net worth and encourage those buyers who have been sitting on the fence to purchase. These new buyers lead to higher turnover rates, reinforcing the existing trend.”
The December report included a ranking of the top 10 best and worst performing metros based on real estate market indicators, such as sales and listing activity and prices, inventory, days on market, and foreclosure and REO activity.
Michael Sklarz of Principal of Collateral Analytics, noted three of the top ten metros are in Texas and another three in California. As for the bottom-ranked metros, Sklarz observed most have double-digit months of remaining housing inventory.
Top 10 markets
1. Santa Ana-Anaheim-Irvine
2. Dallas-Plano-Irving
3. Bethesda-Rockville-Frederick, Maryland
4. Austin-Round Rock-San Marcos
5. Seattle-Bellevue-Everett
6. Oxnard-Thousand Oaks-Ventura, California
7. Salt Lake City
8. Minneapolis-St. Paul-Bloomington
9. Los Angeles-Long Beach-Glendale
10. Houston-Sugar Land-Baytown
Bottom 10 markets
1. Little Rock-North Little Rock-Conway
2. Virginia-Norfolk-Newport News
3. Newark-Union
4. Cleveland-Elyria-Mentor, Ohio
5. Edison, New Jersey
6. Knoxville
7. New York-White Plains-Wayne
8. New Haven-Milford, Connecticut
9. New Orleans-Metairie-Kenner
10. Greenville-Mauldin-Easley, South Carolina
19% of loan modification borrowers were paying over 75% of their income toward mortgage
After four and a half years, the National Foreclosure Mitigation Counseling (NFMC) program has assisted about 1.5 million at-risk homeowners, according to a NeighborWorks America report.
Consumers who received mortgage modification assistance from NFMC, which is administered by NeighborWorks, saw their monthly payments decrease by an average of $176 more per month compared to non-NFMC clients, NeighborWorks reported. The savings represents an annual savings of $372 million for NFMC clients.
In addition, homeowners who sought assistance from NFMC were nearly twice as likely to receive a modification, and they were at least 67 percent more likely to stay current 9 months after getting modified, according to the report.
The report also stated that in 2008 and 2009, the program has led to combined savings of about $920 million between local governments, lenders, and homeowners.
The low mortgage rate environment has also brought relief to clients’ mortgage burdens. For example, in October 2008, 30 percent of clients reported they had interest rates below 8 percent compared to 57 percent in August 2012.
According to the report, the main struggle for NFMC customers facing foreclosure is generally income loss or income reduction. About 37 percent of program clients are spending half or more of their income on their monthly mortgage payment, and about 19 percent are spending more than 75 percent of their income on their mortgage.
Among NFMC counselors, the greatest challenge reported continued to be efficient and timely communication with servicers, with more than 40 percent of counselors citing the challenge as an issue.
NFMC has received six appropriations from Congress since December 2007 totaling $619.87 million. As of August 31, 2012, NeighborWorks reported $583.3 million went toward foreclosure counseling and legal assistance to at-risk homeowners. Another $24 million has been allocated for counselor training and other capacity-building activities.
“A homeowner who receives help from the NFMC program saves significant money and time and, importantly, is able to remain in their home,” said NeighborWorks America CEO Eileen Fitzgerald. “The NFMC program has provided counseling in every state, the District of Columbia and Puerto Rico. We’re proud to spotlight the excellence and perseverance of homeownership counselors in helping people to stay in their homes.”
What is the long term re-default rate on this modified? Is it 40% or 80%?
Really, all these people are just waiting for the principal reduction lottery coming in 2013.
Once the folks who receive sizeable principle reductions (gains) decipher the magnitude of the tax bill they’re ultimately going to receive, it will give new meaning to the phrase ‘mood-swings’.
If only, I anticipate a bailout on taxes for principle reductions in 2013. Call it something nifty like, “American Recovery of Reductions Act.” Or something along those lines and watch the votes pour in.
Yes, after giving people free money to irresponsible loan owners, the government will want to make sure the money is truly free.
Government claims to make money on the AIG bailout
The Treasury announced Tuesday it will sell the remainder of its shares of American International Group, Inc. common stock. The move brings Treasury’s stake in the company to an end.
After the offering, Treasury will still hold warrants to purchase about 2.7 million shares of AIG common stock.
“On behalf of the 62,000 employees of AIG, it is my honor and privilege to thank America for giving us the opportunity to keep our promise to make America whole on its investment in AIG plus a substantial profit,” said Robert H. Benmosche, president and CEO of AIG. “Thank you America. Let’s bring on tomorrow.”
Benmosche also pointed out that in addition to repaying its debt, AIG paid $22.7 billion in positive returns to the government.
Together, Treasury and the Federal Reserve invested $182.3 billion to stabilize the failing insurance behemoth in September 2008 at the start of the financial crisis.
Bank of America, Citigroup, Deutsche Bank, Goldman Sachs, and JP Morgan were retained as joint bookrunners for the federal offering.
In addition to recouping the total $182.3 billion, the Treasury incurred a positive return of $5 billion, while the Federal Reserve received a positive return of $17.7 billion.
The Treasury received the bulk of its positive return—$4.1 billion—from common stocks and the remainder from preferred stock holdings.
The greatest portion of the Federal Reserve’s positive return—and the combined positive return to both the Fed and Treasury—came from Maiden Lane II and III, which purchased mortgage-related assets. The profit from Maiden Lane II and III was $9.5 billion.
Since the financial crisis, AIG has diminished in size to about half of what it was. The company has rid itself of many of its non-core assets and now centers its business on its insurance operations.
The Treasury plans to sell its remaining shares at $32.50 per share.
Despite all of the profit touting media hoopla, the Treas. is holding those Series D warrants because they’re out of the money.
When they finally sell those for a tiny profit years from now, they will get to write another story about how the government profited from the bailouts.
“…Those are all good initiatives. It’s somewhat surprising many of these initiatives were not in place before…”
The mortgage industry has been trying to standardized loan data, terms & definitions for years, even before the Recession. MERS hosts conferences where this is discussed regularly. I think they’re close to a proposal on a uniform XML loan app.
2.05% annual FHA insurance premiums coming for larger FHA loans? In September a law passed that allowed an increase in the insurance premium. It still seems weak.
SEN. TOOMEY INTRODUCES AMENDMENT TO REFORM FHA
Dec. 12, 2012 Contact: Nachama Soloveichik
SEN. TOOMEY INTRODUCES AMENDMENT TO REFORM FHA
WASHINGTON, D.C. – U.S. Sen. Pat Toomey (R-Pa.) yesterday introduced an amendment to reduce the risk of a taxpayer bailout of the Federal Housing Administration (FHA). This amendment is identical to the FHA Emergency Fiscal Solvency Act of 2012 (H.R. 4264) which passed the House of Representatives overwhelmingly 402-7.
The FHA insures more than $1.1 trillion worth of mortgages on more than 7 million loans, but its capital reserve suffers from a dangerous shortfall. According to the FHA’s fiscal year 2012 actuarial study, the FHA is valued at negative $13.48 billion under the rosiest of scenarios and may require a taxpayer-funded bailout to keep it afloat. Sen. Toomey’s amendment would institute the following important reforms:
* Increase minimum annual premiums for mortgage insurance and give the Department of Housing and Urban Development discretion to charger a higher premium
* Bar unscrupulous lenders from participating in the program
* Require repayment of losses to FHA by lenders who committed fraud
* Improve the FHA’s internal financial controls, transparency and disclosure requirements
* Require the GAO to conduct an independent safety and soundness review of the FHA
Sen. Toomey has also co-sponsored Sen. David Vitter’s (R-La.) FHA Reform Bill (S. 1997) which would implement far-reaching reforms to recapitalize the agency.
“While I hope to see further reforms, this measure is an important first step in modernizing the FHA and protecting taxpayers from another government mandated bailout,” Sen. Toomey said. “A companion piece of legislation received wide bipartisan support in the House of Representatives, and I hope we can pass this legislation with the same enthusiastic bipartisan support in the Senate.”
Acting FHA Commissioner Carol Galante praised the House-passed FHA Emergency Fiscal Solvency Act:
“We are pleased that the bill passed by the House includes provisions that will allow FHA to continue its efforts to strengthen its enforcement capabilities in order to protect its insurance fund and American taxpayers,” Commissioner Galante said. “We look forward to continuing to work with both chambers to enact final legislation to provide FHA with the tools it needs to build on the vital reforms implemented by this administration.”
Welcome to the Chicago Way. Really, anyone who lived in Chicago for a while would find none of this surprising. There’s a good reason Chicago has always been, and always will be, a deeply corrupt town, inhabited only be the desperately poor and wealthy “community organizin’” parasites, ruled entirely by sleazy backroom deals. Why anyone would expect different when these 19th century scum move to Washington is beyond me.
extremely spot on
Edward DeMarco’s replacement may have nothing to do with mortgage principal reductions – “Dave Dayen pieced it together. It’s the $200 billion in FHFA putback litigation
against the banks”.
“So banks still have this extraordinary exposure from the housing collapse and their fraudulent sale of mortgage-backed securities. And their biggest hurdle comes from the FHFA lawsuit. If it’s successful, it will inform all these other lawsuits and cost banks up to hundreds of billions of dollars. And people think the Obama Administration wants to replace Ed DeMarco over principal reduction?
Compared to the FHFA lawsuit, all the other lawsuits and enforcement actions by the federal regulatory apparatus are pinpricks. That lawsuit opens up the banks to far more exposure. In addition, banks have complained about lending standards for selling loans to Fannie and Freddie in the secondary market, and the due diligence to which they have submitted new loans. A new FHFA Director would have control over all of this, and if the benchmark is “confirmability from Republicans,” I would hardly expect a more aggressive or interventionist policy profile.”
Interesting premise. His argument makes sense.
Also, this.
The QE4 announcement really didn’t light any fire today. I hope this doesn’t encourage a massive QE5
Since the half-life of each QE event continues to get shorter and shorter, ‘buy the news’ is becoming ‘sell the news’ simply due to the impotence factor. At the current burn rate, expect QE5 (or whatever they chose to call it) to commence sometime in early Q1-13.
Edward DeMarco, Sheila Bair, and Neil Barofsky are the three government officials that I have come to respect during this housing crisis. Unfortunately, they are also the three officials most reviled by the Obama Administration.