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"It'd be so easy to give in to political pressure and just do what a lot of powerful forces would like you to do. But then you're not fulfilling the oath of office that you took." – Armando Falcon, Falcon Capital Advisors politically impractical. To the chagrin of his opponents, Edward DeMarco remains firmly in place. footing the bill. In an intriguing coda, it noted that "changing circumstances may call for an updating of our analysis." The Lightning Rod A Growing Wave How did a self-effacing economist become such a lightning rod for controversy? It all revolves around the newest perceived fix for the mortgage crisis: principal forgiveness. Twelve million homeowners are underwater on their loans. If they could just eliminate that negative equity, the reasoning goes, they'd lead a housing recovery that would spur the economy. By refusing to allow the enterprises under his control to write down principal amounts, Edward DeMarco has prevented that from happening, his critics argue. DeMarco's position is simple. As he explained in a C-SPAN interview last fall, "Principal forgiveness does not accomplish our conservator mandate." While that response left critics gasping in exasperation, he stuck to it in subsequent statements. In January 2012, the Treasury Department raised the stakes by tripling its incentive payments to mortgage investors that use principal write-downs in loan modifications. The same month, the FHFA released the analyses that led the agency to reject principal forgiveness as a loss mitigation option. Citing the "statutory mandate to conserve the assets and property of Fannie Mae and Freddie Mac," the release also highlighted the agency's central dilemma in formulating policy: how to balance the needs of distressed homeowners with the rights of taxpayers who were 48 Meanwhile, the demand for principal write-downs has escalated. While it began with disgruntled homeowners and policy wonks, it was soon picked up by public figures harder to ignore. Treasury Secretary Timothy Geithner and HUD Secretary Shaun Donovan both voiced support for the idea. They also happen to sit on the Federal Housing Finance Oversight Board, which advises the FHFA. New York Attorney General Eric Schneiderman, who heads a presidential task force investigating mortgage-backed securities and their role in the crisis, strongly supports principal forgiveness; so does New York Federal Reserve Bank President William Dudley and even DeMarco's predecessor, James Lockhart. In January of this year, the Federal Reserve issued a white paper that endorsed principal forgiveness as one of several recovery tools. In April the International Monetary Fund (IMF) joined the fray with a white paper of its own, urging adoption of a debt forgiveness program modeled on the Home Owners' Loan Corporation that President Franklin Roosevelt established in 1933. With such a formidable cast of proponents, the idea has quickly gathered momentum. On May 1, Reps. Elijah Cummings (D-Maryland) and John Tierney (D-Massachusetts) released a letter accusing DeMarco's agency of making decisions based on "ideology" rather than "data and analyses," possibly causing "unnecessary losses to U.S. taxpayers." They cited documents received from an anonymous former Fannie Mae employee purportedly showing that internal analyses at the agency actually favored principal forgiveness. The programs were allegedly quashed by other Fannie officials who harbored a "philosophical" aversion to the policy. The letter further implied that DeMarco deliberately withheld these documents. A Matter of Trust To at least one former colleague who has known DeMarco for more than 20 years, those charges don't ring true. Armando Falcon is chairman and CEO of Falcon Capital Advisors and a former director of OFHEO, where DeMarco later served as COO. "I've always known Ed to be a straight shooter who tries to be as objective as possible in doing his job," Falcon said. "I've never known Ed to be an ideologue. So I don't think descriptions of him in that way are accurate." As DeMarco himself pointed out in his response to Reps. Cummings and Tierney, the FHFA initiated several pilot programs involving principal forgiveness as far back as 2009, which would tend to deflate the charges of ideological bias. Falcon himself knows something about being at the center of controversy: As head of OFHEO, he pursued an investigation of Fannie Mae that led to the ouster of then-CEO Franklin Raines in 2004. Like DeMarco, he aroused the ire of powerful political players and had to persevere against strong headwinds. "You've got to stay focused on just doing your job and not get distracted because of external pressures," Falcon observed. "It'd be so easy to give in to political pressure and just do what a lot of powerful forces would like you to do. But then you're not fulfilling the oath of office that you took." Facing his own pressure and criticism, DeMarco remains philosophical. "No one likes being put in that position," he says, "but I understand the frustration. It doesn't deter me from making sure that FHFA carries out its responsibility in a thoughtful

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