Housing industry asks $5 trillion question: what does Watt want?
WASHINGTON (Reuters) - The U.S. housing industry has waited three months to find out how Mel Watt will govern taxpayer-owned mortgage companies Fannie Mae (FNMA.OB) and Freddie Mac (FMCC.OB), and has been frustrated by his silence.
The former 11-term congressman from North Carolina, who took over the agency that oversees the two enterprises in January, has not delivered an annual strategic plan, which would usually be public by now.
"We have yet to see or hear Watt's vision for housing finance," said Clifford Rossi, a former banker and risk executive at Freddie Mac who is now a finance professor at the University of Maryland. "He is still getting up to speed."
Not only has Watt's reticence surprised the industry, but it has disappointed some lawmakers who had hoped for guidance on housing legislation.
As director of the Federal Housing Finance Agency, Watt has tremendous influence over Fannie and Freddie, which own or guarantee about $5 trillion in U.S. mortgages. Banks, credit unions, homebuilders, real estate brokers and would-be homeowners all have a stake.
Sources inside and close to the FHFA say they believe he is largely comfortable with the current direction of the two companies and they do not expect to see dramatic changes.
At a private reception for him on February 27, Watt, who declined to be interviewed for this story, jokingly described his routine as "meeting all day and reading all night."
In his sole policy action, just days after taking office in early January, he set aside a decision by his predecessor to increase the loan fees Fannie Mae and Freddie Mac charge. Watt said he wanted to thoroughly review the proposal, which could curtail mortgage availability.
The companies, which were seized by the government in 2008 after losses from investments in risky loans brought them near collapse, purchase mortgages and package them into securities for investors, which they offer with a guarantee. Providing liquidity to the mortgage market ensures wide access to 30-year, fixed-rate loans.
Watt, who recently addressed the FHFA's staff at a town-hall style meeting, will provide what may be the clearest signal of his intentions in a so-called scorecard, which provides targets and specific plans for the mortgage companies. The scorecard is usually released in the first quarter, and the delay is one factor that has concerned the industry. The FHFA declined to comment on when it may be released.
The scorecard will reveal whether Watt seeks to reduce Fannie and Freddie's footprint, since it will lay out what fees the agency will charge and the size of loans they can guarantee, which can impact the cost and availability of mortgages.
Talks on overhauling the housing finance system have intensified on Capitol Hill in recent months, but analysts say it could take years for legislation to be enacted. That would leave Watt with unusual power in the meantime to call the shots on both long-term strategy and daily management decisions for the two companies at the heart of the U.S. housing finance system.
Lawmakers working on overhaul plans have solicited ideas from the Obama administration, banks, trade associations, consumer advocates and Watt's agency.
But when asked to provide input, Watt declined, leaving some lawmakers in the dark who had previously hoped he would position himself as a go-to adviser on housing policy, according to sources familiar with the bill drafting process.
Regulators often play a role in helping to shape legislation for an industry they oversee. For example, several weighed in with advice as Congress crafted the Dodd-Frank Act, the financial regulatory overhaul enacted in 2010. At times they even sat side-by-side with lawmakers in drafting the bill.
"Watt's voice ... has been muted. He hasn't publicly been part of the debate," said Brandon Barford, a partner at Beacon Policy Advisors, a public policy research firm.
Edward DeMarco, who led the FHFA in the wake of the 2008 financial crisis until Watt took over, had asserted himself as a staunch defender of the taxpayers who pumped $187.5 billion into Fannie Mae and Freddie Mac to keep them afloat.
Despite great political pressure, he rejected the idea of letting the companies cut loan balances for troubled borrowers.
Watt could lead the agency in a different direction, particularly now that Fannie Mae and Freddie Mac are profitable, and consumer advocates want him to revisit DeMarco's decision.
"He's being a little cautious, but that's probably good at this point," said James Lockhart, a former director of FHFA who is now vice chairman at WL Ross & Co. "It's a big job to oversee two of the largest financial institutions in the world, and getting inside those behemoths is always an issue."
(The story is refiled to fix verb tense in first paragraph)
(Reporting by Margaret Chadbourn; Editing by Prudence Crowther)