Fannie and Freddie aren’t going away, Watt says
By Darrell Delamaide
WASHINGTON (MarketWatch) — One of the country’s biggest political footballs, housing finance reform, took some funny bounces over the past week.
Most notable were the first public appearances by the government’s new point man for running Fannie Mae DE:FNM +2.01% and Freddie Mac FMCC +0.46% , former North Carolina Congressman Mel Watt, who took office as director of the Federal Housing Finance Agency in January and was nominated more than a year ago.
Watt surprised a number of people in a speech at the Brookings Institution and a long interview with C-Span last week when he said he wasn't wasting any time figuring out the future of housing finance or staying awake at night worrying about investors in Fannie and Freddie shares.
Nope. His job is to keep housing finance humming along right now. If that means expanding the “footprint” of the two lending groups, which guarantee the bulk of U.S. mortgages, because private lenders aren't ready to take up the slack, then so be it.
Watt reversed the plan of his predecessor, Edward DeMarco, who hung on as acting director of the FHFA much longer than many people wanted, to lower the principal amounts for “conforming” loans that Fannie and Freddie are willing to guarantee.
In other steps to increase access to credit, Watt relaxed the terms for Fannie and Freddie to force lenders to take back loans and eased some requirements for down payments. He also moved to improve liquidity in the market by increasing the portion of non-guaranteed credits investors could acquire.
As for reforming housing finance, not his job. He is not going to think about it, not going to talk about it, and, said this 10-term congressman, he is not even going to read the legislative proposals for Fannie and Freddie’s future.
The latest such proposal, which calls for winding down the two entities and providing government guarantees to mortgages from private lenders, was approved last week by the Senate Banking Committee, but with such tepid support it is virtually certain to remain a dead letter in an election year.
It's been almost six years but are affordable homes still being kept off the market because they are underwater. That's the finding of a recent survey from Internet real estate giant Zillow. Zillow's chief economist Stan Humphries explains the data. Photo: Getty.
Barring a burst of legislative energy in the lame-duck session after November’s midterm election, that would allow the bill sponsored by Sens. Tim Johnson, D-S.D., and Mike Crapo, R-Idaho, to die a quiet death.
The bill, which seemed designed to allow banks to reap the profits from government guarantees rather than the taxpayers, as is currently the case via paybacks to the U.S. Treasury from Fannie and Freddie, inspired little enthusiasm among either Democrats or Republicans.
For Watt, his mission is clear. He is there to minimize taxpayer risk and to help as many people as possible qualify for credit to buy a home.
In the C-Span interview, Watt described what went wrong with Fannie and Freddie and the housing market in general. “Everybody kind of lost sight of the objective to provide responsible housing finance in this country,” he said. “So everybody wanted to make money. And everybody was making money but it was unsustainable. And so our responsibility now is to not worry about making money. We want to make sure we’re not going to lose money. But we want to provide housing finance in a sustainable way until somebody tells us to do it in a different way.”
When the housing crisis broke, the government was obliged to take Fannie and Freddie, which operated as government-sponsored enterprises, into conservatorship.
Watt said his mandate as head of the agency managing that conservatorship is not to reduce the role of the two enterprises, or to get them ready to wind down should Congress decide that’s what it wants to do.
“I don’t think about it in terms of taking steps to end the conservatorship,” Watt said. “The statute doesn’t tell us to back out. It tells us to continue to create a national resilient housing-finance market in this country. That role is there until Congress tells us that it is not there anymore.”
Watt’s nomination was held up for months as part the Republican policy of using the filibuster rule to obstruct administration appointments. His was one of the first nominations approved after Democrats moved to ease filibuster restrictions in November.
After 20 years in an increasingly polarized Congress, Watt probably is not losing any sleep worrying that new legislation will put him, or Fannie and Freddie, out of a job anytime soon.
By ERA Henley Real Estate in Conway, AR
http://www.eraarkansas.com
ERA: 501-327-6731
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