WASHINGTON — The man with power over more than half of U.S. mortgages lives in a 1961 brick split-level house. There’s a basketball hoop in the driveway and a green Subaru Outback in the carport. The homes on Edward DeMarco’s block are so close that neighbors see into each other’s windows.
This surprised several dozen demonstrators, one in a vampire costume, who arrived at DeMarco’s residence in a middle-class D.C. suburb last month to demand he quit his job as acting director of the Federal Housing Finance Agency (FHFA).
“My home is better looking than this,” said Catrese Tucker, a Massachusetts toll collector whose property is in foreclosure. “I don’t believe this is his home.”
As the overseer of mortgage giants Fannie Mae and Freddie Mac, DeMarco has become the focus of ire from homeowners and lawmakers who want more aid for troubled borrowers, even as the two government-run companies subsist on taxpayer life support that now totals $190 billion.
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The career economist is looking beyond the current housing crisis, which shows signs of easing with home prices finally on the rise. Instead, DeMarco is working toward a day when the government no longer backs most U.S. home loans.
Republicans and Democrats in Congress and President Obama all say they want to wind down and replace Fannie Mae and Freddie Mac, yet they’ve been deadlocked on a solution. That makes DeMarco perhaps the only official in D.C. actively working to shrink the government-sponsored enterprises.
“The FHFA under the leadership of acting director DeMarco is slowly but surely enacting housing-finance reform without the guidance or consent of Congress,” said Isaac Boltansky, a policy analyst for Compass Point Research & Trading. “That’s due, in part, to the complete inability for Congress to find any consensus.”
Fannie Mae and Freddie Mac buy mortgages and package them into securities on which they guarantee payments of principal and interest. This adds liquidity to the housing market — effectively taking the mortgages off banks’ books and freeing up funds for lenders to make new loans.
The enterprises, which now own or back $5.2 trillion in mortgages, pushed themselves to the brink of insolvency in 2008 after investing in risky loans. In what was supposed to be a temporary arrangement, the federal government stepped in with a financial lifeline and put the newly created FHFA in control.
Under DeMarco, the agency has begun changing how the two companies charge for assuming mortgage risk, in an attempt to lure private capital back into the market. It is also pushing the formerly competing companies to synchronize their operations and is working to create common standards and processes for issuing mortgage-backed securities that could be adopted by any entity, public or private.
In an interview, DeMarco said he sees these steps as investments that could pay off no matter what lawmakers eventually decide to do with Fannie Mae and Freddie Mac.
“We are trying very hard to show positive progress towards a future housing-finance system in making repairs that address some of the many shortcomings that contributed to the crisis,” he said.
DeMarco, 52, has been focusing on Fannie Mae and Freddie Mac for most of a career that spans decades. At the same time, he said, this isn’t where he expected to find himself four years after the companies were taken into U.S. conservatorship.
“When we put Fannie and Freddie into conservatorship, I don’t think any of us thought it was going to be four years before we got through this mess,” said James B. Lockhart, DeMarco’s predecessor as director of FHFA, now vice chairman of the investment firm WL Ross & Co.
The oldest of six children in a family that moved around the U.S. following his father’s career as an engineer, DeMarco attended Notre Dame University as an undergraduate, majoring in economics.
“I was attracted to the notion that market economies are vehicles for allocating scarce resources in an efficient manner,” he said. “It’s those basic ideas that still very much motivate me today.”
He went on to earn a doctorate in economics from the University of Maryland, writing his dissertation on taxes. He began scrutinizing the government-sponsored enterprises in 1986 as a research fellow at what was then called the General Accounting Office.
His conclusion, published in a 1990 report: Fannie Mae and Freddie Mac were operating with little oversight as private companies backed by the implicit understanding that the Treasury would rescue them if necessary. The companies needed much closer federal supervision “to keep emerging problems from imposing losses on taxpayers,” the report said.
He went to work at the Treasury and in 2006, became deputy director at the predecessor to FHFA, and began running the agency in an acting capacity after Lockhart’s departure in 2009. Republicans in the Senate have blocked White House attempts to install a political appointee in his place.
The fact that he is now in charge of dealing with the mess that he once warned about, he said, “gives me no pleasure.”
DeMarco goes to work every day in the same building where his father once worked as an engineer at the Department of Transportation. A slight man in wire-rimmed glasses who wears a U.S. flag pin on his lapel, he’s seen by employees as a manager who keeps close counsel with a small circle of advisers.
Colleagues and acquaintances describe him as self-effacing and even-tempered, a stickler for rules and personal responsibility who makes decisions based on careful study rather than political conviction.
His meticulous approach carries through to DeMarco’s hobbies, including fantasy football — at least until recently.
“His team stinks now,” one of DeMarco’s nephews said in an interview with the Notre Dame athletics website last year. “He’s too busy trying to fix the housing mess.”
DeMarco’s analytical style, especially when it comes to ensuring that Fannie Mae and Freddie Mac aid the housing market, has won accolades from Republicans who like his taxpayer-first approach. At the same time, his focus irks some Democrats, who say he doesn’t care enough about families in danger of losing their homes.
DeMarco says his emphasis on protecting investors in mortgage-backed securities has been mischaracterized as sympathy for corporate interests when it’s really concern for ordinary Americans.
“Mortgage-backed securities are critical elements in the investments of our retired citizens that have bond portfolios and are relying on that as a source of income,” he said.
While public focus is on spurring refinancings, DeMarco has been taking steps to shrink Fannie Mae and Freddie Mac according to a blueprint FHFA released earlier this year.
Most of this work has gained little public attention. Instead, DeMarco is best known for one controversial position: His longstanding refusal to forgive some debt on loans backed by Fannie Mae and Freddie Mac. He says that would encourage some struggling homeowners to stop paying their mortgages in the hope of getting a break.
In February, Treasury Secretary Timothy Geithner tried to persuade DeMarco to change his mind by offering to pay as much as two-thirds of the cost.
At the end of July, DeMarco released an analysis that concluded that taxpayers were likely to lose money. The government-sponsored enterprises would continue to be barred from reducing loan principal, he decided.
In the aftermath, calls for Obama to replace DeMarco came from a diverse group that included members of Congress, New York Times columnist Paul Krugman, the United Steelworkers Union and even the Sierra Club, the pro-environment lobby.
Activists emblazoned the words “Fire this Man” on posters below an unflattering close-up of DeMarco, his eyebrows raised and mouth open.
And last month, they held a pizza party on the front lawn of the home where he and his wife, Garland, an accountant, raised their four children, delivering an oversized pink slip to the mailbox.
“They’ve been questioning his motivations in a way that I think is extremely unfair,” said Ted Gayer, co-director of the Economic Studies program at the Brookings Institution in Washington. “He’s this unassuming guy who just worked his way through the bureaucracy and found himself here at the focal point of a very intense debate.”