GOP Delays Confirmation Of Obama Nominee Because He Might Want To Help Underwater Homeowners

The Wall Street Journal reported earlier this month that the Obama administration has been trying to cajole Fannie Mae and Freddie Mac into writing down loan principal for troubled homeowners. Incoming House Financial Services Chairman Spencer Bachus (R-AL), however, is not on-board with the effort. And he’s evidently not alone.

In fact, the GOP is so dead-set against helping borrowers who are underwater on their mortgages — meaning they owe more than their house is currently worth — that they are delaying confirmation of the administration’s nominee to lead the Federal Housing Finance Agency (Fannie and Freddie’s chief regulator) because he might be sympathetic to loan write-downs:

Senate Republicans are pressing to delay the confirmation of Joseph A. Smith, the North Carolina banking commissioner, to head the Federal Housing Finance Agency. They are concerned he might allow Fannie and Freddie to participate in an Obama administration initiative to write down loan balances, say people familiar with the matter.

Mr. Smith first appeared to be headed for a quick confirmation. But he has become tripped up by a broader fight between the White House, which wants to use the firms to help heal housing markets, and GOP critics that say they shouldn’t be run as policy vehicles that create more losses.

The administration’s foreclosure prevention efforts have largely flopped, and the banking industry is on pace to foreclose on one million homes both this year and next. Allowing Fannie and Freddie to write-down loans could help put a dent in these huge numbers.

Republicans, however, are arguing that such a move is unfair, as Fannie and Freddie would be forced to eat losses while helping only specific homeowners. Senate Banking Committee Ranking Member Richard Shelby (R-AL) said that write-downs amount to “redistribution from taxpayers in general to certain classes of home owners.”

But this basically ignores the wider negative effects foreclosures, which drag down home values for everyone. As The American Prospect’s Tim Fernholz explained:

[Republicans have a] rather short-sighted approach, given that Fannie and Freddie are already propping up almost the entire housing market, and that the costs of both foreclosure and consumer debt overhang are a drag on the broader economy. Foreclosure is everyone’s problem, especially when many of these borrowers are underwater not because of their own irresponsibility but because of dramatic drops in the price of housing.

According to Treasury Secretary Tim Geithner there “is a pretty good economic case for Fannie Mae and Freddie Mac to participate in those programs.” FDIC Chair Sheila Bair has also called for principal write-downs, saying that they “could help reduce defaults, keep people in their homes, avoid costly foreclosures, and enhance the value of these loans.” But the GOP has stood in the way of every effort to help troubled borrowers, and this is no exception.

This post originally appeared in “The Wonk Room” at the Center for American Progress.

by Mike Licht, via Creative Commons
By Pat Garofalo  Center for American Progress


neil a.
Neil A7 years ago

I just do not understand why people(intelligent?) & their advisors let them get in such a stupid mess I could see it was not sustainable back in 2005 so sold my house in UK for £605,000(more than $1Million at that time)as I thought house price inflation had got beyond stupid & I was mature enough to have seen a number of previous crashes.

jane richmond
jane richmond7 years ago

How do I get in on the party?

David C.
David Connally7 years ago

Phil S

"Barney Frank and Co. were the oversight entity for Fannie and Freddie- thats why I brought up his name"

Barney Frank was a minority member of the oversight committee as the financial disaster developed, as Fannie and Freddie built their dangerous portfolios. Why didn't you bring up the name of the Republican committee chair? He had major oversight responsibility when the damage was being done.

Barney Frank took over a sinking ship.

Phil S.
Phil S.7 years ago

To David C- Barney Frank and Co. were the oversight entity for Fannie and Freddie- thats why I brought up his name. I didn't say he was the cause of the situation- he just lied about their financial health and hindered any reforms. There are plenty of you tube videos showing the hearings- look them up if you care. I agree that Bush2 was a financial black hole. Reagan on the other hand had to repair the complete disaster of the Carter years and he did, with bipartisan support. Bush1 was voted out of office for lying about raising our taxes. Clinton had his wings clipped by the midterm elections which ushered in a Republican congress- much as what has just happened. Welfare Reform was the biggest reason the deficit was reduced during his administration. The internet bubble helped raise $$ on the positive side and how did that work out? POP!

Lawrence Duke
Lawrence D7 years ago

How can so many Idiots show up on one site.

Go check out your history of the United States, start with the Carter years. Don't skip over Clinton. Then Bush and Obama.
And if you all can, do it with an open mine.

David C.
David Connally7 years ago

Paul B.

"David, I have no idea WHERE you get support for those incredible misstatements of reality."

Which in particular - be specific and I'll provide sources? Google National Debt and you'll see the debt numbers I quote. I found one error. I said gross public debt - should have been gross federal debt. I also rounded off the debt as % of GDP - the actual numbers are below. The make-up of House, Senate by date is easy to find. Barney Frank was a Democrat in a House with a Republican majority. You don't think that financial institutions screwed up? You don't think that simple arithmetic demands are at least equal for mortgagor and mortgagee? I'm puzzled by what you find to be my misstatements.

Gross federal debt as a % of GDP:

Reagan in 32.5 out 53.1
Bush I in 53.1 out 66.1
Clinton in 66.1 out 56.4
Bush II in 56.4 out 83.4

Paul B.
7 years ago

David, I have no idea WHERE you get support for those incredible misstatements of reality. You can say whatever you want, but that don't make it true.

Paul B.
7 years ago

Look, there are a myriad of reasons WHY a person is unable to pay their mortgage. BUT, we can not expect the government to "fix" the problem. Many people will lose their homes and have to move into something they can NOW afford, regardless of what of before. This happens all the time, even without a recession, it is a part of life. If you can't get the mortgage company to renegotiate the loan, then move. If you are that broke you can't pay $3,000 per month, then move to a home (one of the many foreclosed upon that are now available at reasonable pricing) that you CAN afford. The bank will take the loss on the sale and in many cases just bill Fannie or Freddie for the difference, which is another scam altogether.
Life is difficult with no guarantees. We must reset personally to the current living conditions. Right now it sucks, but that is our own fault... that's right... OUR fault for not watching the store-keepers more closely. When things were good, people jumped in for their share, woohoo. But now that the goody bag is empty, many of the same people are crying foul. Whining will get you nowhere. Pick yourself up, dust off the damage and try again, lessons learned.
One lesson is don't rely on the government to cure all your ails, or provide you with everything you think you need. What they give, they can just as easily take away. Be self reliant, be responsible for your actions and live with consequences. I have, and will again, as many others have and now need to.

Janyce Stockstill
Janyce S7 years ago

They don't actually give a big damn about anyone but themselves and their super rich backers.

Marilyn L.
Marilyn L7 years ago

Leslie H bravo and thank you.

If this article is true it's a shame. There should be something in the Senate rules that says a President's nominees should have confirmation within the first 3 months of his Presidency.

Very President makes these changes, add judges, etc. They all deserve the same respect and expediency no matter which Party has the most votes. This not only shows respect for the Office the President, and the Senate, but it shows respect to the people.

That the Senate has delayed Judges and appointments for 2 years now is shameful. Every President deserves to have the people he choses to work with.