Ed DeMarco

FHFA Chief Ed DeMarco

In one of the more cynical campaign promises I’ve seen in a while, the Obama Administration has apparently been running around to housing advocates telling them they will fire Ed DeMarco as head of the Federal Housing Finance Agency… after the election.

In 2010, Senate Republicans opposed Mr Obama’s choice to replace Mr DeMarco and have since said they would be unwilling to support other candidates who support principal reduction schemes. Administration officials have argued there are few qualified candidates willing to take the demanding position. Some borrower advocates have argued that the White House has kept Mr DeMarco in office in part because it provides the administration with an easy excuse when questioned about why they have not done more to prevent millions of home seizures.

But in the past few weeks, Obama administration officials – including Gene Sperling, director of Mr Obama’s national economic council, and Jon Carson, director of the White House’s office of public engagement – have told Democratic groups that they hope to oust Mr DeMarco in the coming months, most likely by replacing him via an appointment while Congress is not in session, according to people familiar with the matter.

Administration officials have asked housing groups to supply a list of potential candidates. Officials made their statements most recently on September 13 during a White House housing summit.

This is just an unbelievable manipulation. Ed DeMarco has been running FHFA since August 2009. At no time over the three years, including at least a small portion when Democrats held 60 votes in the Senate, was there any impediment to replacing DeMarco. The White House waited a year-plus to name a nominee for replacement (Joseph Smith, the banking commissioner in North Carolina and the current oversight monitor for the foreclosure fraud settlement). They named him in the lame-duck session and withdrew the name by January. There hasn’t been a replacement since, and clearly no idea of who to replace him, since the White House is ASKING THE HOUSING GROUPS FOR RECOMMENDATIONS three years later.

Now, it’s a close election, and every little bit of help counts, so the White House leaks that maybe, if their guy gets re-elected, they’ll dump DeMarco. But it all depends on the election, of course. It’s hard to be shocked by cynical politics, but this certainly comes close.

Meanwhile, on the same day this leaks, the US Attorney for Manhattan, Preet Bharara, sues Bank of America for $1 billion over their sale of loans to… Fannie Mae and Freddie Mac (I guess now Bharara can say he “got tough” on the banks in his Attorney General confirmation hearing in the Senate). The FHFA, of course, has had an active lawsuit for over a year against BofA and 16 other banks, over the sale of mortgage backed securities to… Fannie Mae and Freddie Mac. The lawsuits attack slightly different parts of that transaction, with the FHFA lawsuit a pure misrepresentations and warranties case on MBS, while the US Attorney seeks damages on the guaranteeing of mortgages. But the USA case builds on the FHFA lawsuit; the FHFA Inspector General is a party to it. Do you think for a second that the government won’t try to fold everything together and settle the cases, especially in the absence of a hard-charging DeMarco, who has been very aggressive on seeking MBS repurchases?

I happen to disagree with DeMarco on principal reduction, but he has been excellent on repurchases, and the Administration probably would take the trade of eliminating liability for the banks in exchange for a few scraps for homeowners. Moreover, the banks would take the trade as well; the exposure from the MBS issuance is far greater.

My point is that the reason for the White House wanting DeMarco gone, all of a sudden, are potentially more obscure than people want to admit. And that assumes that they will follow through on this promise to make a recess appointment, based on nothing more than “re-elect us and we’ll swear to do it this time” comments from senior Administration officials.

David Dayen

David Dayen