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FHFA’s Christmastime Moral Relativism and the New New Housing Market

Ed DeMarco

Ed DeMarco keeps making decisions at the FHFA

We keep hearing about this “any day now” firing of Ed DeMarco, supposedly a promise made to housing advocates during the campaign. But the above-linked article has no proof that this will happen, not even an off-the-record comment from anyone at the White House. It only goes through the mechanics of the situation (it would require a nomination for an FHFA head and a recess appointment) and names some potential replacements, including Michael Barr, who as Sheila Bair reported in her book, took a run at watering down Merkley-Levin while working under Tim Geithner at Treasury. In other words, he plays on Team Banker.

Meanwhile, DeMarco keeps making decisions, so I assume he has no expectation of not being in charge soon. Fannie Mae and Freddie Mac both announced foreclosure moratoria over the holidays, something that’s habitual in the industry and that they’ve done in previous years, so I don’t know why it’s a story. Adam Levitin kind of goes over the edge here, but I agree with the idea that there’s nothing special about the holidays that should invite a moratorium. A life-changing event like foreclosure isn’t any BETTER if it’s done in January rather than December. Furthermore:

Finally, how on earth is a holiday moratorium justifiable under the conservatorship? If the FHFA is going to get worked up over variations in state foreclosure timelines and get high and mighty about protecting the taxpayer, then why isn’t it cracking the whip here, holidays be damned? Either this is about saving taxpayer dollars or this isn’t. I don’t see anything in the conservatorship statute authorizing discretionary Christmas presents. (And I’m going to have a lot of trouble swallowing a goodwill/reputational benefits explanation.) FHFA can’t pick and choose when it will play Scrooge and when it will play Santa any more than it can pick and choose when to play the economics card and when to play the morality card.

In other words, FHFA has situational ethics here. They rail against states with long foreclosure timelines, even increasing their guarantee fees. But when faced with headlines about foreclosures during Christmas, they become beneficent, and act to increase foreclosure timelines.

But we’re not supposed to talk about foreclosures anymore. The housing market is back, baby! Anyway, banks have stopped relying on foreclosures and now use the better-for-everyone practice of short sales. It’s worth pointing out that borrowers do not really understand that a short sale is a foreclosure by another name:

Lynne Zurback is getting ready for Christmas. Today she’s hand-painting a nativity set.

“I paint. I do flowers. That’s my goal, is to open up a flower shop that only sells local products,” Zurback said.

So when she got letters offering her $13,000 to have a short sale on her condo in Abacoa she thought it was the new start she desperately needed.

“They call me and say, ‘You’re going to be here tomorrow at noon,’ and I was like, ‘Oh that’s wonderful. I’ll get my money. I can move on. I can do what I want to do.’ ‘Oh no, you’re not getting any money.’ And I was you’ve gotta be kidding me,” Zurback said.

Upset with the news, she cancelled the sale. Zurback was told the money was bypassing her hands and going towards past HOA dues.

A short sale just ensures that someone like Zurback can extricate herself from the home without further debt. Any lien holder will get the proceeds of the sale before the borrower – otherwise you wouldn’t need a short sale. And after January 1, with no action, she’ll have to pay taxes on her “gift” of forgiveness of debt post-sale.

But you don’t have to check the box “foreclosure,” so foreclosures are decreasing. Yay?

Someone ask Fannie and Freddie if they’re planning a short sale moratorium too.

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David Dayen

David Dayen