Housing Solutions: Principal Reduction And DeMarco Removal

The housing crisis remains one of the biggest drags on the economic recovery.  Nearly 12 million Americans live in homes financed through Fannie Mae or Freddie Mac who owe more on their mortgage than their homes are worth. 

The solution is Principal Reduction, which would reduce mortgages to their fair market value.

The primary obstacle is Edward DeMarco, the Acting Director of the Federal Housing Finance Agency, who, as Isaiah Poole explains, "is a Bush administration holdover who is still in his position because Republicans in the Senate blocked the person President Obama nominated as his replacement."

DeMarco remains stubbornly resistant in the face of increasing demands for him to help end the housing crisis by allowing principal to be reduced for struggling homeowners with Fannie Mae and Freddie Mac mortgages.

The Congressional Progressive Caucus has urged DeMarco to act or be removed, backed up by the new America Underwater partnership between progressive grassroots groups Rebuild the Dream and the New Bottom Line.

But it isn't only progressives.  As Bill Scher writes, "Mortgage Bankers Association CEO David Stevens last week lent his support for principal reductions, saying they would put "cash flow into the hands of families." He joins other Wall Street voices such as famed hedge fund manager Greg Lippman, the world's largest bond fund, Pimco and the mortgage analysts at Amherst Securities."

 An article in The Atlantic authored by analysts from the Center for American Progress noted  the "growing consensus among economists, investors, academics, and consumer advocates that more 'principal reduction' -- writing off a portion of a mortgage that exceeds a home's value in exchange for a higher likelihood of repayment -- can help avoid another wave of costly and economy-crushing foreclosures."  As they write, that's "good for homeowners and lenders, and because millions of underwater mortgages are controlled by the government, it's also good public policy."

Still DeMarco won't budge.  And since, he won't move, it is time for the President to remove him and use a recess appointment to replace him.  As Robert Borosage urges:

The President has the power to right this wrong. He has used recess appointments before to stand up to obstructionist conservatives. Now he needs to act again. And he needs to hear from us. It is time to move.

Click here to tell President Obama: Fire Edward DeMarco and replace him with a recess appointment.

The Ongoing Housing Crisis And The End Of An Era

By Robert Reich, cross-posted from his website

Economic cheerleaders on Wall Street and in the White House are taking heart. The US has had three straight months of faster job growth. The number of Americans each week filing new claims for unemployment benefits is down by more than 50,000 since early January. Corporate profits are healthy. The S&P 500 on Friday closed at a post-financial crisis high.

Has the American recovery finally entered the sweet virtuous cycle in which more spending generates more jobs, more jobs make consumers more confident, and the confidence creates more spending? > On the surface it would appear so.

American consumers in recent months have let loose their pent-up demand for cars and appliances. Businesses have been replacing low inventories and worn equipment. The richest 10 per cent, owners of approximately 90 per cent of the nation’s financial capital, have felt freer to splurge. Consumer confidence is at a one-year high, according to data released on Friday.

The U.S. government has not succumbed entirely to the lunacy of austerity. Republicans in Congress have just agreed to extend both a payroll tax cut and extra unemployment benefits, and the US Federal Reserve is resolutely keeping interest rates near zero.

Yet the US economy has been down so long that it needs substantial growth to get back on track – far faster than the 2.2 - 2.7 per cent projected by the Federal Reserve for this year (a projection which itself is likely to be far too optimistic).

A strong recovery can’t rely on pent-up demand for replacements or on the spending of the richest 10 per cent. Consumer spending is 70 per cent of the US economy, so a buoyant recovery must involve the vast middle class.

But America’s middle class is still hobbled by net job losses and shrinking wages and benefits. Although the US population is much larger than it was 10 years ago, the total number of jobs today is no more than it was then. A significant portion of the working population has been sidelined – many for good. And the median wage continues to drop, adjusted for inflation. On top of all that, rising gas prices are squeezing home budgets even more.

Yet the biggest continuing problem for most Americans is their homes.