Edward DeMarco's refusal to allow principal forgiveness at Fannie Mae and Freddie Mac has led to renewed calls for his head. A little-known fact is that replacing DeMarco as acting director of the Federal Housing Finance Agency might not make a bit of difference, even if legal hurdles to his ouster could be surmounted.
The 2008 law that created FHFA restricts who can be appointed as the agency's "acting director." Under the law, President Barack Obama would have to choose among three deputy directors at FHFA, two of whom were hand-picked by DeMarco. And the third? It's DeMarco himself, who remains FHFA's deputy director for housing mission and goals.
Obviously it's impossible to know whether the two deputy directors picked by DeMarco -- Jon Greenlee and Stephen Cross -- oppose principal reduction to the degree their boss does. But given the staff analysis FHFA released yesterday, the opposition to principal write-downs at Fannie and Freddie extends beyond the top boss.
There's another way to get a new FHFA director. President Obama could circumvent the Senate (which has proved a stumbling block to previous nominations) and make a so-called "recess appointment." That would allow him to install an FHFA director while Congress is not in session, much the way he did with Richard Cordray, who heads the Consumer Financial Protection Bureau.
That's unlikely to happen for several reasons, the most glaring of which is that the election is just three months away. Republicans hate few things more than Fannie and Freddie. Installing someone in the top job overseeing the government-sponsored enterprises would seem a sure way to incite potentially damaging attacks from the opposition party. Obama has tended to tread carefully when it comes to recess appointments, using them more sparingly than his recent predecessors. As of Jan. 5, Obama had made 32 recess appointments, according to the Congressional Research Service. President George W. Bush made 171 recess appointments, 99 of which were to full-time positions. President William Clinton made 139 recess appointments, 95 to full-time positions.
Obama did actually nominate someone to replace DeMarco, tapping North Carolina Banking Commissioner Joseph Smith in November 2010. He eventually withdrew after Senate Republicans, notably Alabama Republican Richard Shelby, opposed his nomination, expressing concerns that Smith would allow principal writedowns at Fannie and Freddie.
As I wrote yesterday, DeMarco's opposition to writedowns defies economics. Unfortunately, Fannie and Freddie seem destined to follow his wrong-headed lead until at least November.
(Deborah Solomon is a member of the Bloomberg View editorial board. Follow her on Twitter.)
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