State attorneys general urge Obama to replace housing regulator

Acting director of the Federal Housing Finance Agency Edward DeMarco delivers testimony on robo-signing and foreclosures at a hearing of the Housing and Community Opportunity Subcommittee of the House Financial Service Committee, on Capitol Hill in Washington, November 18, 2010.

WASHINGTON (Reuters) - A group of state attorneys general on Monday called on the Obama administration to replace the regulator of housing-finance giants Fannie Mae and Freddie Mac, as the White House gets closer to naming a new director to fill the post.

The group, nine attorneys general led by Martha Coakley of Massachusetts and Eric Schneiderman of New York, said Edward DeMarco, who has been running the Federal Housing Finance Agency in an acting capacity since 2009, has not provided enough aid for troubled homeowners.

In a letter to President Barack Obama and the Democratic and Republican leaders of the Senate, the attorneys general criticized DeMarco's decision to block Fannie Mae and Freddie Mac from reducing loan principal for borrowers who owe more than what their homes are worth, saying it was an impediment to the U.S. economic recovery.

"Under the leadership of Acting FHFA Director Edward DeMarco, Fannie Mae and Freddie Mac remain an obstacle to progress by refusing to adopt policies that will help maximize relief for struggling homeowners," Schneiderman said in a statement released along with the letter. "The time has come for the president and Congress to work together to install a new, permanent leader at FHFA."

The White House is expected to name a replacement for DeMarco within weeks, according to sources familiar with the matter. The Wall Street Journal reported on Friday that Representative Mel Watt, a North Carolina Democrat, was at the top of the list of potential replacements but that a final decision had not been made.

The White House declined to comment, as did a spokesperson for Watt.

DeMarco has refused to allow Fannie Mae and Freddie Mac, which help finance about two-thirds of new U.S. home loans, to forgive mortgage debt on loans they back, despite pressure from the Obama administration. The administration went so far as to offer federal funds to cover some of the costs that government-controlled Fannie Mae and Freddie Mac could incur.

The attorneys general cited a $25 billion government negotiated settlement with five major banks a year ago as proof that wide, but not deep, relief to U.S. homeowners is possible. They want the White House to name an FHFA director who is willing to pursue programs that would help Americans survive the pain of foreclosure.

The White House had previously sought to replace DeMarco, but a vote on the president's nominee was blocked by Republicans and he eventually withdrew.

A new nominee would also likely face opposition from Republicans, who remain concerned about the costs of the taxpayer-funded bailout of Fannie Mae and Freddie Mac.

Fannie Mae and Freddie Mac, two congressionally chartered companies charged with providing liquidity to the U.S. housing market, were seized by the government in September 2008 as losses on risky loans mounted. Their bailout has cost taxpayers $131 billion.

(Reporting by Margaret Chadbourn; Editing by Steve Orlofsky)