Donovan: Obama Can't 'Fire' FHFA's DeMarco

WASHINGTON — President Obama disagrees with the Federal Housing Finance Agency's refusal to allow principal reductions on mortgages but can do little to stop it, Housing and Urban Development Secretary Shaun Donovan said Thursday.

Speaking with reporters on a conference call, Donovan acknowledged that many on the left have been urging Obama to fire acting FHFA Director Ed DeMarco since he announced Tuesday that Fannie Mae and Freddie Mac would not permit principal reductions as part of a government refinancing program. That is impossible, Donovan said.

"He is a career employee — some have called for him to be fired. That is not authority that the president has," Donovan said.

The Obama administration had nominated Joseph Smith — now the $25 billion mortgage settlement's monitor — to be head of FHFA, but Senate Republicans opposed the appointment, Donovan said.

"We had a very strong nominee, very qualified," said Donovan. "He was blocked by the Senate."

Donovan's comments came the same day a consumer group announced it had collected 25,000 signatures in the past day alone calling on the president to fire DeMarco. Rebuild the Dream said more than 117,000 people have signed a petition demanding DeMarco's ouster.

"Giving America's underwater homeowners some mortgage relief would save our government $1 billion, keep hundreds of thousands of American families out of foreclosure and create more than a million jobs, as homeowners start spending more money locally," said Van Jones, president and co-founder of Rebuild the Dream. "Edward DeMarco is single-handedly standing in the way of all of this. The best thing President Obama can do for the economy right now is get rid of Ed DeMarco."

Donovan is technically correct in saying that Obama cannot fire DeMarco over a policy disagreement. Under the law, the head of an agency can only be dismissed "for cause," a standard DeMarco has not reached, according to Mark Calabria, a former top Senate Banking Committee staffer and now director of financial regulation studies at the Cato Institute. Even if he were removed as acting head and returned to his previous role as deputy director, however, it's unclear who Obama could replace DeMarco with that would view the decision on principal reductions any differently.

"The president cannot fire DeMarco in terms of his being a government employee," said Calabria. "If DeMarco provided sufficient cause, he could probably be removed but still keep his former job as deputy director. The President would be limited, however, to appointing one of the other deputy directors as acting director."

Donovan reiterated that the administration strongly disagrees with DeMarco's move, and continues to hope he will change his mind.

"We believe, the president believes, that the decision that Ed DeMarco made is wrong," Donovan said. "We've urged him to reconsider. There is clear evidence at this point that principal reductions benefit not just homeowners and neighborhoods, but also the economy."

He was seconded by Iowa Attorney General Tom Miller, who said principal reductions have been effective in helping homeowners as part of the mortgage settlement with the top five servicers. He disputed DeMarco's fears that if Fannie and Freddie granted principal reductions, it would cause homeowners to strategically default on their mortgages.

"I just believe so strongly that Ed DeMarco is wrong," said Miller, noting that there have been 82,000 principal reductions as part of the settlement. "There haven't been these defaults. This is an ideological worry."

The two officials hosted the conference call to discuss a new effort by HUD to reach out to borrowers that may benefit from the mortgage settlement. They announced a new series of public service announcements to be run nationwide as well as a dedicated site on HUD's website to help homeowners find relevant information.