DeMarco argued that writing down the principal on first mortgages would amount to a transfer of taxpayer wealth to the biggest U.S. lenders, whose "second mortgages" are normally subordinate to the primary mortgages backed by Fannie Mae or Freddie Mac.

Some officials in the Obama administration, the Federal Reserve and Congress have called on Fannie Mae and Freddie Mac to write down the value of mortgages they own or guarantee as part of an effort to help the U.S. housing market recover from a deep slump that saw one third of property values wiped out since 2006.

DeMarco has previously resisted those calls, citing concerns it would increase losses at the two companies and undermine his mission of keeping a lid on the costs of their taxpayer-funded bailout. "Certainly the environment of the last number of months have shown substantial attempt to influence or direct an independent regulator," he told the business newspaper. Fannie and Freddie provide funding for the bulk of U.S. home loans by buying mortgages from banks and repackaging them as securities for investors, which they then guarantee. The Obama administration has proposed using TARP funds to lessen the cost to Fannie and Freddie of doing writedowns. DeMarco is now considering whether the new money the Obama administration is laying on the table changes the equation. Freddie Mac and Fannie Mae were taken over by the government in 2008 after massive mortgage losses at the housing giants threatened the global financial system. Since then, the U.S. government has funneled more than $150 billion in taxpayer funds into Freddie and Fannie, in part to ensure that credit remains available for homebuyers.

(Reporting by JoAnne Allen, Editing by Gary Crosse)

• A Permanent Economic Emergency