FANNIE MAE IS BADLY IN NEED OF REFORM & NEW LEADERSHIP MINUS CONGRESS' INTERVENTION (NO BAIL OUT):
WITHOUT CONGRESSIONAL INTERFERENCE, FANNIE MAE STAFF CAN NO LONGER USE POLITICS TO HURT HOMEOWNERS WHO VOTE OPPOSITE OF THEIR CHOSEN CANDIDATES.
WITHOUT CONGRESS' HELP, FANNIE MAE STAFF CAN NO LONGER STEAL HOMES WITH EQUITY FROM U.S. MILITARY VETERANS WHO VOTE OPPOSITE OF THEIR CHOSEN CANDIDATES.
Post Sources: American Banker, Forbes, Fox News, Youtube
********How next FHFA chief can reform Fannie, Freddie without Congress' help
The legislative stalemate over housing finance reform is likely to prolong the uncertain future for the government-sponsored enterprises. But it also illuminates the power of the next head of the Federal Housing Finance Agency.
With FHFA Director Mel Watt's term due to end in January, his successor — either a Senate-confirmed appointee or an interim chief — has substantial authority to set part of the path forward on GSE reform, including how far Fannie Mae and Freddie Mac expand their mission and the status of a common securitization platform shared by the two mortgage giants.
“Reforms can move forward without legislation,” said Anne Canfield, executive director of the Consumer Mortgage Coalition. “There are things that can be done administratively that would reduce the government’s exposure and risk to the GSEs and bring private capital into the marketplace, but in a little bit of a different way.”
That highlights the importance of whomever the Trump administration selects for the job. It could be someone who differs from Watt — an Obama appointee — in style and policy, who could opt to go as far as placing the mortgage giants into receivership.
“I don’t think we’re going to have legislative GSE reform anytime, but the day-to-day decisions they make, whether to approve a pilot or fund the Housing Trust Fund, these are significant decisions that will impact the trajectory of mortgage finance,” said Isaac Boltansky, the director of policy research at Compass Point.
During his tenure, Watt has appeared cautious about changing Fannie and Freddie's role in the absence of congressional reforms.
"I am well aware, and regularly express my belief, that conservatorship should never be viewed as permanent or as a desirable end state and that housing finance reform is necessary," Watt said in a 2014 policy speech early in his FHFA tenure. "However, Congress and the administration have the important job of deciding on housing finance reform legislation, not FHFA. Instead, our task is to continue to fulfill our statutory mandates, to execute our strategic plan and to manage the present status of Fannie Mae and Freddie Mac."
But observers said his successor could take advantage of the agency's powers to move in the direction of reducing the GSEs' role.
Before Watt arrived, the agency was run on an acting basis by Ed DeMarco, who had joined the agency in the Bush administration and was seen as more opposed to expanding Fannie and Freddie's reach.
“It depends on the person," said Canfield. "It really depends on who they select.”
Some candidates who have been mentioned as possible successors to Watt — including DeMarco himself along with retiring House Financial Services Chairman Jeb Hensarling — have been vocal about reducing the government’s role in the mortgage market.
In February, when Fannie requested a $3.7 billion draw from the Treasury, Hensarling harshly criticized giving the company any more bailout funds.
“Today’s announcement that Fannie Mae has once again run out of money to pay its own bills is the latest example of why we need to repeal the GSEs’ government charters once and for all," he said then in a statement, adding criticism later of Watt's handling of the companies' fiscal situation.
"The even more troubling aspect of the GSEs financial crisis is FHFA Director Mel Watt’s continued insistence to siphon taxpayer dollars to prop up payments to the Housing Trust Fund that the GSEs cannot afford to make," Hensarling said. "If the GSEs don’t have the money to pay their own bills, they should not be making optional payments to outside entities."
While Watt's term will end in early 2019, a pair of recent scandals facing the agency has led some to speculate he could leave sooner. Watt has been accused of sexually harassing an FHFA staffer and is reportedly under a separate investigation for attempting to weaken the oversight of the FHFA Office of Inspector General.
Before a new nominee is Senate-confirmed, the White House could appoint one of Watt’s three lieutenants to serve as acting director or appoint a temporary director under the Federal Vacancies Reform Act when Watt leaves.
“If there’s a prolonged period where we have an acting director … I think that it would be a slower decision-making process and more of a caretaker,” said Boltansky.
But Canfield disagreed, saying that the administrative decisions made by an acting director could depend on the person.
“I think the acting director can do quite a bit,” she said. “I would hope that they would get a permanent director in there but if they’re not able to do that, I think they can all move forward with an acting director.”
If the White House were to move quickly to nominate a successor to Watt, it would signal that the administration wants to move quickly to end conservatorship and implement reforms of the mortgage finance system, Keefe, Bruyette & Woods wrote in recent a research note.
“However, it is difficult to say what policy path the administration will pursue until we see what personnel it intends to insert at FHFA,” the company said.
Of all the actions a director could take, the most significant would be to put Fannie and Freddie into a receivership, which supporters claim would restructure the GSEs without burdening taxpayers.
Among the other decisions the next FHFA director could make would be to determine the courts of efforts to implement a common securitization platform, which would allow Fannie and Freddie to issue uniform mortgage-backed securities. The FHFA has pushed the second phase of the process to June 2019 — after Watt’s departure.
The director will also be at liberty to decide whether or not to continue Fannie's pilot Enterprise-Paid Mortgage Insurance program and Freddie's similar Integrated Mortgage Insurance pilot, which both debuted this year. Some have criticized the mortgage insurance programs as being too far outside the bounds of the GSEs’ mission.
An FHFA director with the view that the GSEs' footprint should be reduced could oppose the mortgage insurance pilots.
However, the pilot programs are too new to automatically write off, and the FHFA director could just as easily wait to see if the programs are effective before making a decision to implement them further, said Laurence Platt, an attorney at Mayer Brown.
“I don’t think this is an issue that will be dependent on who the new FHFA director is,” Platt said. “I don’t think there’s a partisan side to this, per se.”
To be sure, there are clear limits on what the next FHFA director can do administratively. Creating some new housing finance structure to replace the GSEs is the territory of Congress. Instituting an explicit government guarantee or changing the ownership charter or structure of the GSEs would need congressional approval, which is unlikely to happen in the short term.
Besides congressional reforms, there are other policy areas where the FHFA cannot move unilaterally. The FHFA would have to work with the Treasury Department to change the preferred stock purchase agreements, which require Fannie and Freddie to direct nearly all of their profit to Treasury. Investors have long claimed this is unfair, and have unsuccessfully challenged the legality of this agreement in court for several years.
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