Obama Prepares To Kick Out Fannie's Ed DeMarco

Tyler Durden's picture

The man who singlehandedly fought the administration over the idea of converting Fannie and Freddie into the latest taxpayer-funded handout machine, FHFA head Ed DeMarco, and refused to write down Fannie and Freddie home loans in yet another Geithner-conceived debt forgiveness scheme, whose cost like any other non-free lunch will simply end being footed again by yet more taxpayers (what little is left of them), appears to have lost the war, and with the second coming of Obama appears set to be replaced as head of the FHFA. The WSJ reports that "The White House has begun preparations to nominate a new director to lead the agency that oversees Fannie Mae and Freddie Mac as soon as early next year, according to people familiar with the discussions. This would pave the way for President Barack Obama to fill what has become one of the most important economic policy positions in Washington." And so the impetus for as many as possible to default on their mortgage in a wholesale scramble to obtain debt forgiveness, will soon take the nation by storm, while the contingent liability will be transferred to those who still believe that taking out debt should be a prudent activity and one that takes into account future cash flows. In other words, the solvent middle class - those who were prudent stupid enough to save when they should have simply be doing what the government does and spend like a drunken sailor, preferably on credit, will soon be punished once more. And like it. Because according to the new broke normal "it's only fair."

From WSJ:

The director the Federal Housing Finance Agency has emerged as a key policymaker because it is the principal gatekeeper to Fannie and Freddie, the mortgage giants that own or guarantee half of all mortgages, at a time when broken mortgage markets have become a top concern of officials at the White House and the Federal Reserve.


The FHFA’s current director, Edward DeMarco, took the job more than three years ago in an “acting,” or interim, capacity. He has remained in the position after the Obama administration’s first nominee for the job, Joseph Smith Jr., then the North Carolina banking commissioner, withdrew from consideration in January 2011 amid opposition from Senate Republicans. The FHFA, created 4½ years ago, has never had its own director confirmed by the Senate.


Administration officials are still gathering names of potential nominees and haven’t pared down to a shortlist or interviewed candidates, according to people familiar with the matter. White House and FHFA officials declined to comment.


Officials are said to be considering an array of candidates: financial regulators or professionals, academics, and current administration officials. Two names frequently mentioned by housing-policy analysts are Susan Wachter, a professor of real-estate finance at the University of Pennsylvania’s Wharton School who served in the Clinton administration, and Michael Stegman, who currently serves as an adviser to Treasury Secretary Timothy Geithner on housing finance. Both declined to comment.


Jonathan Fiechter, deputy director for monetary and capital markets at the International Monetary Fund, was approached about taking the job several years ago. Mr. Fiechter, who has held senior positions at the Office of the Comptroller of the Currency and the Office of Thrift Supervision, says he hasn’t had formal discussions recently.


After Mr. Smith withdrew from consideration, the Obama administration considered nominating Jim Millstein, the corporate restructuring executive who oversaw the Treasury’s re-privatization of American International Group AIG -2.26%, but backed off when it appeared that any nominee would be blocked, according to people familiar with the matter. “That ship has sailed,” said Mr. Millstein, who has since started his own restructuring company. He says he isn’t interested in the job if it is to be a caretaker position.

While DeMarco's replacement is yet to be determined, one thing can be sure: the next head of the FHFA will not share his predecessor's values. What are they?

Mr. DeMarco has argued that his legal mandate to conserve the assets of Fannie and Freddie leaves little room for policy proposals that have high upfront costs or uncertain future benefits. The career civil servant was the No. 2 official at the agency until his predecessor, an appointee of President George W. Bush, decamped for the private sector.

What is lost in translation is that GSE asset impairment would also lead to a possible future impairment of their liabilities, which are, for all intents and purposes, Federally guaranteed obligations of the US government ever since their September 2008 nationalization (after all the Fed is monetizing $40 billion of GSE debt each month precisely thanks to this loophole). As such, the cost will be borne out by those who still pay in taxes into that great insolvent institution known as the US, as all such tax payments will merely go to fund - both on a current and accrued basis - yet another massive financial black hole.

Then again, who cares about details any more in a banana republic enamored with ultra-short term results and generating upticks in the DJIA at any (taxpayer) cost.

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davidsmith's picture

You and your readers are not keeping your eyes on the ball with regard to this.  We are changing the Constitutional regime.  We are abandoning West Coast Hotel v. Parrish and United States v. Carolene Products.  These decisions kept most facts (such as housing and medical care) in the political system.  This meant that there were NO individually enforceable rights to housing and medical care.  Don't be stupid enough not to understand the meaning of replacing this guy.


The Fed is going to buy housing bonds and write down mortgage principal amounts.  This means that the United States is unilaterally raising the level of scrutiny for housing ABOVE Lindsey v. Normet "minimum scrutiny."  This will move housing OUTSIDE the political system and into the courts as an individually enforceable right.


The same is the case with NFIB v. Sebelius.  In that case, the Supreme Court approved raising the level of scrutiny for medical care, moving it OUT OF the political system and into the court as an individually enforceable right.  I will give you an example of how this is going to be litigated: one way or another, the Federal grants to California county hospitals for treatment of the poor, are going to be reduced.  Those hospitals are preparing to file a suit to stop those cuts, based on the PATIENTS' rights to medical care.  They will win those suits.


The Administration is racing ahead, trying to stave off a serious social deterioration crisis by abandoning the scrutiny regime (which, after all, is the third Constitutional regime we have had and is SEVENTY years old), and instituting a new constitutional regime.  This regime is the maintenance regime.  The doctrine of the maintenance regime is that the law does only one thing: it maintains important facts.  Important facts are facts which are


1.  facts of human experience

2.  which history demonstrates

3.  are unaffected by assaults upon them.


That is, they are robust, resilient and recurrent facts of human experience.  This is the test laid down in West Virginia v. Barnette for removing facts from the political system and putting them in the court as individually enforceable rights.


The entire raft of "social" facts, with their "positive" rights, has been found by factual investigation to be important facts.  This means the distinction between "social" and "political" facts (such as protected speech), on which the scrutiny regime rests, has been abolished (in the case of education, see the Abbott New Jersey cases for the progress made on making educational an individually enforcable right).


It doesn't matter whether you are a conservative or a liberal--what I describe above is what is happening.  And if you are stupid enough to think it's "socialism" or "big government" then you ought to have the brains to read the gun cases, in particular McDonald v. Chicago.  The Barnette argument described above, is EXACTLY the argument used by conservatives in the McDonald case in order to win the individually enforceable right to have a weapon of self-defense in the home.  It also happens to be the argument used to establish gender and racial legal equality as individually enforceable rights.


So, don't be an idiot.  UNDERSTAND the Constitutional regime change process which is under way.

Global Hunter's picture

what you wrote is really interesting, but I admit I was a little lost.  I will re-read.

LawsofPhysics's picture

yes, everyone will have a "right to housing", just like a "right to heathcare" sounds great.  Now if we can just find some productive capacity to cover the real costs.  Nothing will change until the issue of fraud and real consequences  for bad behavior is restored.  Well that, or the supply lines start to break.  then shit gets real, quickly.  When fraud is the status quo, possession is the only "law" that matters.  I suggest that everyone make that their central plan moving forward.

Dr. Richard Head's picture

I am going to start lobbying for a Right to Brothels for all voting age men.  Someone has to pay for my porn or my pussy.

trav777's picture

concur; the real problem is that these "facts" aren't actually facts.  Sex and racial equality are the two most notable.  The Court may also be wont to proclaim that the sun rises in the west, but that won't make it so.

A Constitutional regime which attempts to enshrine BS will ultimately prove destructive

H E D G E H O G's picture

David, read your post a couple of times and can't come up with the notion that this, (your post), is going to be god for the rebel, bigotted, pissed-off, armed gold bug that is me? And what about all of the litigation winding up in a "STACKED SUPREME COURT OF JESTERS" where we all know what the outcome will be, just askin?

darteaus's picture

Welcome to Ømerkia!

Global Hunter's picture

What is the standard of life going to be like for 89% of the population when the government owns 98% of all mortgages?

RockyRacoon's picture

Obama phones will be augmented with Obama homes!  Maybe Obama cars after that, or will it be Obama tuition?

H E D G E H O G's picture

shit, it'll be obummer phones & EBT's in US General Motors sport utilities, with a nice pricipal free home coming to your neigborhood soon.

you enjoy myself's picture

they really are going to forgive principal, aren't they?  i swear taxpayers and/or responsible adults are just being punked now. its not even subtle.  guess this means the Fed is going to have to increase its MBS buys now - can't have the banks take a loss when it can be socialized, can we?

also, give it less than two years before this happens with student loans. 

Global Hunter's picture

I am reading this a different way, rather than forgive principal, they'll own almost everybody forever.  That's the way I read it, does the IRS leave you alone and let you call a do-over?

Dr. Richard Head's picture

My liberal neighbor walked away from their $259K mortgage, but called the bank to find out how to go about doing it.  They were so fucking smug about the $2,500 check they received from the bank to move out like nice boys and girls.  Little did they know that the $43K LESS the house sold for in the short-sale was now considered their income.  Must have been fun to get pushed up into that 'wealthy" tax bracket. 

RockyRacoon's picture

Yeah!  Nasty liberal bastards.  Serves 'em right.

A conservative would never do that!

Dr. Richard Head's picture

Fuck!  I was not indicating the walkaway was a liberal thing.  I was making a point about how the IRS taxed them "wealthy" mother-fuckers.  Must have felt pretty good to pay their fair share finally right?

Global Hunter's picture

And as more people walk away from their mortgages, the mortgages of working tax payers who support this practice, will see their mortgages become held implicitly, legally by the government of the USA.  They already own the mortgages in theory, now its just a matter of finding the proper legalese over the next 4 years to make it happen and have the government control housing.


Cthonic's picture

Same thing happened during the Great Depression, federal gov't ended up w/ a significant chunk of foreclosed properties via the homeowners' loan corporation, the federal home loan bank system and the federal housing administration.  Full circle.

Rearranging Deckchairs's picture

Uhm depends upon the year. Currently said "income" is statutorily excluded but said exemption expires on 12/31/12 unless Congress acts. If its a primary residence than it likely wasn't income.

The Mortgage Forgiveness Debt Relief Act was introduced in Congress on September 25, 2007, and became law on December 20, 2007. This act offers relief to homeowners who would formerly owe taxes on forgiven mortgage debt after facing foreclosure. The act extends such relief for three years, applying to debts discharged in calendar year 2007 through 2009. (With the Emergency Economic Stabilization Act of 2008, this tax relief was extended another three years, covering debts discharged through calendar year 2012.)

According to the IRS website this also applies to forgiveness associated with short sales of principal residences.

But the debt forgiveness for lots of other debt would still be cancellation of debt income. The Occupy debt campaign should realize they may be creating tax problems for their debtors.



Cthonic's picture

Currently the IRS considers forgiven/canceled debt to be part of gross income...

RockyRacoon's picture

Only when liberals do it -- according to Dick Head.  Excuse me, Dr. Dick Head.

Dr. Richard Head's picture

Good job assuming.  I was pointing out the person that did was a liberal and about their tax consequences.  Thanks for playing though.

RockyRacoon's picture

Well, at least that liberal prick will not be cluttering up the neighborhood!  How dare he invade the conservative enclave.

You're a good sport.  I like you.

RockyRacoon's picture

Anybody who's a Ron Paul supporter can't be all bad!  I'm in a totally red state so I went Libertarian since I was throwing away my vote no matter what.  Not really enamored by Gary Johnson, so say the least.

Edit:  Oooh!  I see that Gary has more than one sign-in account.

LawsofPhysics's picture

"does the IRS leave you alone and let you call a do-over?"


You only need worry if you have any assets or wealth parked in the matrix that they know about.  Come on, that was easy.

tip e. canoe's picture

the banks are a misdirection at this point.  the banks are already being made whole by QEx and are just skimming off the top in return for "servicing" the mortgages.     all those interest payments are either going to the FED or the FedGuv, depending on whether the mortgage was split up into an MBS or backed by Aunt Fannie & Uncle Fred.

beyond the point of no return (which most of us here would agree is where we are), there is no prinicipal anyhow, only interest.    got to keep the interest flowing, even in a reduced amount.   the top survives from the skim off the bottom.

if and when they do forgive principal, that will be a good sign that the propaganda has failed to stimulate the reality in a meaningful fashion, so get ready for the other velvet glove to come off.

LongSoupLine's picture

Well, at least we know where Corzine's next fucking stop is.

Fuck you BarryO. fucking treasonous Chicago fuckwad.

Joebloinvestor's picture

They are gonna get exactly what they wanted.

The government is gonna house and feed them on taxpayer and newly printed money.

Hope they know how to squeal when the bill comes due.

Yen Cross's picture

The [bill /tally], will be on the backs of their indoctrinated children/

hawk nation's picture

Fortunately i dont have to worry about housing since FEMA just opened a site within ten miles of my house that looks big enough to house lots and lots of people.

Im confident that posting on ZH should qualify me for admission

buzzsaw99's picture

DeMarco was an asshole anyway.

ShrNfr's picture

The legal responsibility of a conservator or trustee of an estate is to preserve the value of the estate for all concerned. It is a breach of fiduciary duty to do otherwise. But when did ethics ever stop this administration from doing anything?

Arthur Two Sheds Jackson's picture

"Then again, who cares about details any more in a banana republic enamored with ultra-short term results and generating upticks in the DJIA at any (taxpayer) cost."


I wish this was on the billboard at the entrance to my town.


Please?For Christmas?

Seasmoke's picture

did Trav777 and RobotTrader, just get let out of the penalty box ???......must have been a 10 minute Major

akak's picture

God, PLEASE tell me that RobotAsswipe is not back!

Who the fuck is going to be next, MethMan and Leo?

RockyRacoon's picture

Careful.  Got a mirror handy?  I wouldn't evict ya, but I don't run this dump.

Edit update:  I don't run any dump, not even the one I live in.

akak's picture

Thanks for your concern, Rocky, but I don't feel any particular need to be careful in this context.

I will gladly put my posting history here (imperfectly civil as it has sometimes been) up against the gratuitously trollish history of certain others on ZH any day.

fuu's picture

"imperfectly civil"


akak's picture

Hey, just trying to be honest!



tip e. canoe's picture

page clicks must be down

Quinvarius's picture

You must give to both sides of the equation to balance it.  If they didn't want to do a super debt forgiveness for the people, they should not have done it for the bankers.

WallowaMountainMan's picture

"while the contingent liability will be transferred to those who still believe that taking out debt should be a prudent activity and one that takes into account future cash flows."

i remember the days when banks would only loan to people who didn't need the money. no matter how prudent or not the potential borrower was, THE BANK required proof. there was no shortage of people who wanted to borrow back then either.

student loans. non discharged in bankruptcy. hmmm....


well, i blame al gore.

no wait. i blame bill c.

if lewinski had been a marilyn monroe rather than a pudgy, he'd been another kennedy and gore would have coattailed in. and kept the budget surplus going. and peace on earth. and goodwill towards women, cause few men deserve it.

where's the cider. who took the cider away.


i found the vodka.

adr's picture

So I get to keep my house and I don't have to pay for it?

Or do I have to lose my job first?

Or do I call the IRS and buy an Obama blow up doll to practice the inevitable butt screwing?

Sorry I guess that would be a Michelle blow up doll complete with realistic male anatomy.



toomanyfakeconservatives's picture

This is a joke... right? I was reading the journal of "Fannie Watch" and their dire predictions over a decade ago on a Windows 95 computer.


Obama, Geithner, and hundreds of other to traitors must be arrested and perp walked in front of the cameras if mankind is ever get past this level of global criminality.

Colonial Intent's picture

[T]he rumor is that Clinton’s State Department is nonetheless about to recommend approval of the Keystone XL Pipeline, which the top climate scientists in the nation have unanimously called a terrible idea. As far as I know, though, Clinton’s subordinates haven’t reached out to ask them why. For more than a year now, it’s been one of Washington’s worst-kept secrets that Clinton wants the pipeline approved. And why not? Its builder, TransCanada, hired her old deputy campaign manager as its chief lobbyist and gave lobbying contracts to several of her big bundlers. Leaked emails show embassy officials rooting on the project; it’s classic D.C. insiderism. (And, weirdly, her rumored successor is just as involved—Susan Rice has millions in stock in TransCanada and other Canadian energy companies.)