WASHINGTON — Top House Democrats leveled heavy criticism Wednesday against Ed DeMarco, the acting director of the Federal Housing Finance Agency, suggesting there may be political reasons why he's been against any principal reduction program for Fannie Mae and Freddie Mac loans.
In a letter to DeMarco, Rep. Elijah Cummings, the lead Democrat on the House Oversight and Government Reform Committee, and Rep. John Tierney said a former Fannie employee told the committee of a pilot program for principal reductions that was tentatively approved in 2010, but was cancelled by Fannie executives before the November elections.
The former employee, according to the letter, said executives were "philosophically opposed" to the concept of reducing mortgage principal for struggling borrowers even if there were economic benefits.
"We have now become aware of new information that calls into serious question the accuracy and completeness of your response, as well as your motivation for continuing to oppose principal reduction programs even when they have the potential to save American taxpayers billions of dollars," Cummings and Tierney wrote in the letter.
The two lawmakers were responding to a letter sent by DeMarco on Jan. 20th outlining the acting director's reasons for refusing to approve a principal reduction for such loans backed by the government-sponsored enterprises.
They said DeMarco never mentioned that a pilot program had been considered in his response to the committee. Rather, he explained to lawmakers that he didn't have the authority to proceed with such a plan.
In their letter, the two lawmakers also highlighted new reports that DeMarco is taking steps to block Fannie and Freddie from participating in principal reduction programs agreed to as part of the multi-state settlement with the nation's five largest mortgage servicers.
"It appears that your refusal to follow Congress' direction and allow principal reduction programs is based more on ideology and the fear of political backlash than on a straightforward analysis of the interests of American taxpayers," they wrote.
Cummings and Tierney also charged that DeMarco's response contradicts earlier statements made by the acting director in testimony before the committee last November. Then, DeMarco stated that principal reduction "is not going to be the least-cost approach for the taxpayer."
"The single most significant revelation in your letter to Congress is that, even based on your own questionable assumptions and data, principal reduction programs serve the taxpayer interests even when compared to your preferred alternative of forbearance," they wrote.