Among the most
contentious issues at the Federal Housing Finance Agency (FHFA) when Edward J. DeMarco
was its acting director was his refusal to allow Fannie Mae and Freddie Mac (the
GSEs) to adopt a principal reduction (or PR) program, citing FHFA’s duty as their
conservator to protect their assets. His
opposition continued even as the Treasury Department offered incentives to
lenders through the Home Affordable Modification Program (HAMP) it co-sponsors
with FHFA. This provoked considerable
friction between the acting director and many members of Congress.
After he was
replaced by Melvin L. Watt as permanent director in January 2014, principal
reduction fell out of the news. Housing
advocates expected Watt to reverse DeMarco’s policy, permitting Fannie Mae and
Freddie Mac to employ PR as part of their loan modification packages but he has
not yet done so.