Who’s the most powerful person in real estate right now?
I’ll give you a hint.
The King Kong of Real Estate
This individual is America’s biggest landlord, controlling over 150,000 foreclosed homes. Collectively, his vast real estate empire is worth approximately $300 billion dollars. He owns REO foreclosures in all 50 states. He even has homes for rent. And he has a gigantic army of people working for him, selling, repairing and managing his foreclosed homes.
Do you know who the King Kong of real estate is?
His name is Edward J. DeMarco, and he’s the acting director the Federal Housing Finance Agency, which oversees Fannie Mae and Freddie Mac, the toxic twins of mortgage finance who owe U.S. taxpayers $180 billion.
Uncle Sam is now the nation’s largest REO landlord, and its DeMarco’s job to protect taxpayers from further losses. As the regulator over Fannie and Freddie, which owns or backs 60 percent of the nation’s mortgages, he is in a very powerful position.
Democrats want to replace DeMarco because he has refused principal write-downs on underwater Fannie and Freddie mortgages. Representative Barney Frank, the liberal Massachusetts Democrat, has called for DeMarco’s resignation. DeMarco has agreed to principal reductions on HUD homes, but only when Congress passes legislation enabling it.
Republicans, on the other hand, claim that writing down Fannie and Freddie mortgages are nothing more than a back door bailout for irresponsible bankers, according to Gretchen Morgenson, a New York Times financial writer. Write-downs, the GOP argues, are a transfer of wealth from taxpayers to large banks.
Here’s the moral hazard in offering principal write-downs on mortgages suggested by Democrats. In 2011, Fannie Mae alone backed an estimated 17.7 million mortgages, of which 7 percent (or about 1.2 million) are seriously underwater. DeMarco and other Republicans fear that debt forgiveness will encourage more defaults and lead to an increase in strategic default. Moreover, RealtyTrac research shows that 12 million borrowers are weighed down by $700 billion in negative equity.
“What I’m really worried about is what happens if you put an incentive shift out there that says, ‘If you can demonstrate hardship, you can have your debt forgiven,'” DeMarco told the Wall Street Journal, worrying about an uptick in strategic default. “We’ve got to consider all of the ramifications of principal forgiveness relative to other tools.”
Readers, what do you think? Do Democratic policy makers have it right by suggesting more government intervention in the real estate market through a new policy of principal write-downs on underwater mortgages, or does DeMarco and his Republican brethren have it right by allowing the free market to correct the real estate market?