President Barack Obama is pressing U.S. lawmakers to confirm Mel Watt to run the regulator of Fannie Mae and Freddie Mac as efforts to overhaul the nation’s housing finance system intensify.
Edward J. DeMarco, acting director of the Federal Housing Finance Agency, has been proceeding with his efforts to shrink the two U.S.-owned companies in the absence of action from Congress. Obama administration officials say they worry the independent overseer may take actions that would conflict with legislative efforts to build a new housing-finance structure.
“You can’t have a wind-down strategy and a transition that doesn’t connect up to that long-term system that we have to build for the American people,” Michael Stegman, counselor to Treasury Secretary Jacob Lew on housing issues, said yesterday at a Mortgage Bankers Association conference in Washington.
FHFA spokeswoman Denise Dunckel declined to comment.
White House officials are pushing for a Senate vote this week on Watt, a Democratic congressman from North Carolina tapped by Obama for the job in May. To date, Watt still hasn’t attracted the 60 votes -- including five Republicans -- he would need to overcome a Republican filibuster. Many Republicans prefer DeMarco, whom they praise for his efforts to reduce taxpayer expenditures on Fannie Mae and Freddie Mac.
“We do not have an exact vote count but we are working hard to make sure there is adequate support for Mel Watt to be confirmed,” National Economic Council Director Gene Sperling said today during a conference call with reporters.
Sperling and other administration officials met Oct. 28 with housing industry representatives at the White House and asked for their help finding the needed votes.
A change of leadership at the FHFA could have a broad impact on the mortgage market since Fannie Mae and Freddie Mac currently back about two-thirds of new mortgages. The two companies buy loans and package them into securities on which they guarantee payments of principal and interest.
DeMarco, who says he is following a congressional mandate to balance the interests of taxpayers and the mortgage market, intends to gradually reduce the size of mortgages that Fannie Mae and Freddie Mac are allowed to buy. He is also working to shrink their purchases of loans on multifamily buildings and raise the fees they charge to guarantee their securities.
His plan also includes creating a common securitization platform that could be used by both companies and later by private securitizers in a future system.
The plan “is entirely consistent with the administration’s call for winding down Fannie and Freddie,” DeMarco said in a briefing with reporters last week. Ultimately, DeMarco said, it is up to Congress to dismantle the two government-sponsored enterprises, which relied on $187.5 billion in taxpayer aid after they were taken into conservatorship in 2008.
Bills eliminating Fannie Mae and Freddie Mac have been introduced in both the House and Senate this year. The expected legislative vehicle for an overhaul is yet another bill being drafted by the leaders of the Senate Banking Committee, Democrat Tim Johnson of South Dakota and Republican Mike Crapo of Idaho. The measure, which could be introduced by the end of the year, is expected to include a role for the federal government as a reinsurer of mortgages behind private capital.
Watt, if confirmed to run FHFA, would “take some time to map out what a coherent transition plan looks like,” James Parrott, a former adviser to Obama on housing issues, said at the Mortgage Bankers Association conference.
The White House is getting lobbying help from some housing industry participants who have complained about DeMarco’s plans to reduce Fannie Mae and Freddie Mac’s footprint as soon as next year. The National Association of Home Builders sent a letter on Oct. 28 to Senate leaders urging a vote.
“The confirmation of Representative Mel Watt will bring much-needed certainty to the U.S. housing finance system as we transition from the current state of conservatorship to a new and stronger system of housing finance,” the letter said.
Meanwhile, DeMarco has many supporters in the Senate, particularly among the Republicans whose votes would be necessary to confirm Watt as his replacement.
“I think that Mr. DeMarco has done a nice job in a tough situation and I’ve met with Mr. Watt and I’ve just been concerned about him changing direction and putting us back in a situation where there’s more risk involved at the GSEs,” Ohio Republican Rob Portman said in an interview. “Plus there’s an ongoing legislative effort to reform the GSEs and I want to be sure that whoever is there will be able to work with our legislators here.”