* DeMarco has overseen Fannie Mae, Freddie Mac since 2009
* Washington gridlock has left future of the firms uncertain
* DeMarco lays groundwork for post-Fannie, Freddie future
By Margaret Chadbourn
WASHINGTON, March 6 Edward DeMarco never thought
he would stay so long as the regulator of mortgage finance
companies Fannie Mae and Freddie Mac, but
nearly four years into the job he is emerging as a leading
architect of the U.S. housing finance system.
Tapped in August 2009 to act as a caretaker for the two
state wards, the acting director of the Federal Housing Finance
Agency has stepped into a vacuum created by Washington gridlock
to lay groundwork for a post-Fannie, Freddie future.
Some believe the career civil servant's de facto authority
is unhealthy given the decisions that need to be made to
determine the government's future role in housing.
"A lot of power is being wielded by an independent,
unaccountable agency," said Julia Gordon, director of housing
finance and policy at the Center for American Progress, a
liberal think tank.
"Is this how we should make important decisions that will
impact most Americans for a long time to come?"
DeMarco has raised hackles on the left for refusing to
permit Fannie Mae and Freddie Mac to write down loan principal
for troubled borrowers, a decision he argues he took to protect
taxpayers. President Barack Obama tried once to replace him, but
Republicans blocked his nominee.
To DeMarco and his supporters, there has been little choice
but to shrink the two mortgage companies, which have come to
finance about two-thirds of new U.S. home loans, and lay ground
work for whatever might come next.
Fannie Mae and Freddie Mac were seized by the government and
placed into a conservatorship in September 2008 as mortgage
losses threatened their solvency. It was supposed to be a
short-term solution to prevent a deepening of the financial
crisis and provide time for Congress and the White House to
decide their fate.
Years later, Republicans and Democrats on Capitol Hill have
yet to resolve disagreements over the government's proper role
in housing, although there is a consensus the
government-sponsored enterprises, or GSEs, should eventually be
wound down. Their bailout has cost taxpayers $131 billion, but
it has allowed them to remain a prime source of support for
housing and the staple of American home ownership, the 30-year
"DeMarco is filling a void that arises from a lack of
congressional action," said Bert Ely, chief executive of bank
consulting firm Ely & Co. "It is generally conceded that
fundamental GSE reform initiatives won't happen this year."
Indeed, a legislative fix could be years off because of the
political risk lawmakers would face in pulling back government
support for home ownership.
NEW SECURITIZATION PLAN
DeMarco, 52, was a deputy at FHFA when its leader, James
Lockhart, an appointee under President George W. Bush, left for
the private sector. He has served since in an acting capacity,
never having been confirmed by the Senate for the job.
He is known for a no-nonsense style and a methodical,
data-driven approach to decision making that associates say is
free of ideology.
An avid Washington Nationals baseball fan, DeMarco can see
the team's ballpark from the desk where he sits each day, and he
keeps a team clock on his wall.
He has woven his way through several government agencies.
During a 10-year stint at the Treasury Department, he
oversaw analyses of public policy issues involving Fannie Mae
and Freddie Mac. He told a panel investigating the 2007-2009
financial crisis that while at Treasury, he warned of the risk
that the two firms could fail. He first began studying the GSEs
at the General Accounting Office in 1986.
As their conservator, DeMarco has the authority to determine
what business the companies pursue and he directs how they are
run. He has taken several measures to try to reduce their
This week, he announced steps to create a new company,
funded by Fannie Mae and Freddie Mac, that will take over much
of their back-office operations and provide a new platform for
securitizing mortgages, a line of business that has been central
to the mission of the two GSEs.
The new company could eventually be privatized or formally
folded into the government, a decision DeMarco made clear would
be up to Congress.
"He's a cautious bureaucrat," said Jim Millstein, chairman
and chief executive officer of Millstein & Co., who helped the
Treasury Department oversee bailouts of AIG and Citigroup. "At
every opportunity, he has taken pains to say he is waiting for
direction from Congress or the administration."
POLITICAL LIGHTNING ROD
Fannie Mae and Freddie Mac do not make loans. Instead, they
provide financing to banks and lenders by purchasing mortgages,
which they either keep on their books or package as securities
which they then sell to investors with a guarantee. The system
is intended to boost lending and homeownership.
DeMarco's latest proposal, unveiled on Monday, will form a
joint venture that could end up replacing the two firms.
Clifford Rossi, a former banker and Freddie Mac official who
now teaches at the University of Maryland said the merger of
Fannie and Freddie's functions is a "signal to the market that
the status quo since 2008 for the GSEs is changing."
FHFA should continue to lay "the groundwork for the next
phase of housing finance and the re-emergence of private capital
into the market," he said.
The plan is designed to pave the way for a housing finance
system that could function no matter what lawmakers eventually
do with Fannie Mae or Freddie Mac. The Treasury Department did
not respond to a request to comment on the plan.
"This is an eye towards the long-term," DeMarco told
reporters on Monday. "What we are trying to do...is ease the
transition from where we are today to wherever lawmakers decide
the country ultimately ought to go."
Any eventual reform is expected to retain some role for the
government in supporting lending. Without a backstop, loan
availability might dry up and mortgage rates, now at historic
lows, could jump and leave the housing market vulnerable.
Republican Representative Scott Garrett, who has his own
proposals for reforming the mortgage finance market, said
DeMarco's plan for a new platform to bundle mortgages into
securities for investors and his efforts to shrink the GSEs are
"This is part of his responsibility in conservatorship,"
Garrett said. "Eventually this will be beneficial to the
But his efforts have made DeMarco a political lightning rod,
particularly for criticisms from the left.
In perhaps the most visible political showdown, DeMarco
fought off pressure from the White House and congressional
Democrats to allow Fannie Mae and Freddie Mac to write down loan
principal for troubled borrowers, an action he claimed would
increase the cost of their taxpayer bailout.
"My question is why DeMarco is giving speeches with major
policy proposals when he has not been confirmed," Representative
Elijah Cummings, a Maryland Democrat who is one of DeMarco's
toughest critics, said in response to DeMarco's announcement of
the new joint venture on Monday.
"He has already shown that he is unwilling to follow
congressional direction with respect to housing issues."
But others view DeMarco's regulatory policies as balanced
and within his mandate.
"His task is to conserve the assets of Fannie and Freddie,"
said Josh Rosner, managing director at research firm Graham
Fisher & Co. "I'm not buying that he's the most powerful man in
housing, nor that he's taking actions that assert policy
prescriptions as much as they're in line with his view of the