The U.S. Senate recently confirmed the appointment of Congressman Mel Watt, D-N.C., as director of the Federal Housing Finance Agency, signaling another significant shift in the industry.
Watt's appointment, via a majority vote of 57 to 41, may usher in a shift in housing policy as he replaces acting director Edward DeMarco, and has been met with mixed initial reactions. The agency's authority over government-sponsored enterprises Fannie Mae and Freddie Mac, which were nationalized in 2008, has been in effect throughout the DeMarco tenure. The change has a wide range of implications for both consumers seeking mortgages and the finance industry that secures them, according to the Wall Street Journal.
The beginning of a new era
Watt's nomination by President Barack Obama, first made public in May, led to much debate and was threatened to be delayed by filibuster leading up to the December hearing. Much of that debate centered on Watt's status as a political figurehead, something his predecessor was not. Despite the pushback from some members of Congress and skepticism on Wall Street, the confirmation was largely met with congratulations and praise for the Congressman, with the general consensus that a change to housing finance policy has long been needed.
House Financial Services Committee Chairman Jeb Hensarling, R-Texas, suggested that the appointment should trigger the sort of wholesale reform outlined by the Obama administration. Hensarling noted that it has been three years since the initial blueprint for reform of the system was released, HousingWire reported.
"I want to praise Ed DeMarco for the commendable job he has done as the FHFA's acting director," Hensarling said. "DeMarco put the interest of hardworking taxpayers first, standing strong against intense political pressure I Washington to do the opposite. It is also my hope that with a new FHFA director, the Obama administration will work with us on the need to create a sustainable housing finance system for our nation."
Hensarling referenced the Protecting American Taxpayers and Homeowners legislation, better known as the PATH Act, as the sort of comprehensive reform he hopes to see expanded on under Watt's leadership.
Despite the mixed reception from bankers and finance industry professionals upon receiving news of Watt's nomination, the Mortgage Bankers Association has issued its public support of the change in direction. While noting the work done over the past five years to reestablish and sustain the housing industry, MBA Chairman E.J. Burke emphasized the association's desire to see the FHFA focus on the securitization market going forward.
"MBA looks forward to working with Director Watt on developing and implementing ideas to improve the function of the secondary mortgage market," Burke said. "Fannie Mae and Freddie Mac have been in conservatorship for more than five years, and it's well past time to move forward on reform. As Director of FHFA, Congressman Watt will have a historic opportunity to shape the secondary mortgage market and the government's role in housing."
Rep. Scott Garrett, R-N.J., echoed many of Hensarling's statements while noting the admirable job done by DeMarco, who took over during a time of financial crisis and oversaw Fannie and Freddie in their streamlined capacities beginning in 2008.
"Director DeMarco has done an outstanding job during his tenure as head of the agency and should be commended for his hard work and steadfast determination in protecting taxpayers by preserving and conserving the assets of the enterprise," Garrett said. "It has been an honor and a privilege to serve with him during this challenging time."
Continued reform on the horizon?
The National Association of Credit Unions also expressed its public support for Watt, saying that it "has always appreciated his willingness to meet with credit unions and to hear their concerns."
Many industry analysts are already predicting that Watt's appointment will lead to more aid for borrowers, with a particular focus and renewed emphasis placed on expanding government refinance programs, such as the Home Affordable Refinance Program (HARP).
"I am elated that after months of uncertainty and obstruction, the U.S. Senate has finally confirmed Congressman Mel Watt to head the Federal Housing Finance Agency," Congresswoman Maxine Waters, D-Calif., said. "Mel Watt's legislative work demonstrates an unwavering commitment to protecting consumers, expanding affordable rental housing, and providing prudent oversight of financial institutions. He will bring this expertise to his new role as overseer of the nation's secondary mortgage markets."
During DeMarco's tenure, a series of steps were taken to reduce the GSEs' footprint within the mortgage market. By requiring banks to repurchase defaulted mortgages, Fannie and Freddie have recouped losses in the tens of billions of dollars and returned to profitability in 2013. The two companies are on pace to fully reimburse their taxpayer-infused bailout of $188 billion via dividend payments to the U.S. Treasury.
The agency has also worked with the White House over the past five years to revamp programs that many American homeowners to refinance mortgages, despite owing more than their homes were worth – a trend that led to a rash of foreclosures and contributed to the housing market downturn. The hope is that the transition in leadership will lead to continued overhaul and long-term sustainability.