A top housing regulator steered clear on Tuesday of a debate over housing finance reform saying that crafting a measure is up to Congress and the Obama administration.
Mel Watt, director of the Federal Housing Finance Agency (FHFA), said it is not his agency’s responsibility to weigh in on the contents of any potential legislation to overhaul the mortgage finance system.
{mosads}“My guess is that there were many people who expected that I would start talking about reform legislation the minute I got to FHFA,” he said at Brookings in his first public remarks since taking over the agency in early January.
“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,” he said.
“However, Congress and the administration have the important job of deciding on housing finance reform legislation, not FHFA.”
Instead, Watt detailed several goals in a new strategic report for government-controlled mortgage giants Fannie Mae and Freddie Mac with the emphasis on making more credit available to more borrowers and maintaining their role in the market.
Watt said that although he has the authority to end the conservatorships of Fannie and Freddie, which were taken over in September 2008, that is an undesirable alternative at the moment.
“This is the reason why we’ve worked so hard in the current space to make sure we have a solid plan for continuing operations of Fannie and Freddie and Federal Home Loan Banks so there will be liquidity and efficiency in the housing market and to continue operations without disrupting housing finance in this country,” he said.
In addition, Watt argued that the FHFA will continue its role to maintain an efficient credit market until private capital demonstrates it can come into market.
For Fannie and Freddie to reduce their footprint into the mortgage market before that would “do serious damage” and be “irresponsible.”
His comments come only two days ahead of a planned Senate Banking Committee markup of a bipartisan housing finance bill that would eventually eliminate Fannie and Freddie and shift much of the mortgage risk to the private sector.
But that bill has been running out of steam with a group of panel Democrats saying they can’t support the measure at this point.
Without more support, the legislation — coauthored by Banking Committee Chairman Tim Johnson (D-S.D.) and ranking member Mike Crapo (R-Idaho) — faces an uphill battle in getting passed by the Senate this year.
That leaves Watt to ensure Fannie and Freddie remain viable in a gradually improving housing market.
Although Fannie and Freddie have sent back to the Treasury more than they borrowed, Watt expressed concern that the legal settlements and tax adjustments that have fueled those profits are running dry.
“We shouldn’t let profits drive decisions we make,” Watt said.
Housing industry experts argue that if Fannie or Freddie need a cash injection from Treasury in the near future it will jolt some lawmakers as to the urgency of legislation.
Watt also said he won’t reduce the current maximum loan limits over concerns about their affect on the health of the current housing market.
Edward DeMarco, the former acting director, had considered reducing them late last year.
Watt also said that the FHFA hasn’t made any decisions on reducing mortgage principal, an idea pushed by the White House and congressional Democrats but refused by DeMarco.
“We have other things we need to focus on at present,” he said.