More Fannie Mae Borrower Aid Expected After Watt Confirmation

The Federal Housing Finance Agency
could slow efforts to shrink Fannie Mae (FNMA) and Freddie Mac and
boost aid to troubled borrowers if U.S. Representative Mel Watt
is confirmed as the agency’s director early next month.

Watt, a North Carolina Democrat, has the unanimous support
of Senate Democrats who voted this week to change the chamber’s
rules to approve nominees with a simple majority. Watt could
gain confirmation as soon as the week of Dec. 9, when the Senate
returns from a recess.

“We believe he is less inclined to lower the conforming
loan limit, raise guarantee fees, or take other steps that could
make housing finance more expensive,” Jaret Seiberg, an analyst
at Guggenheim Securities LLC’s Washington Research Group, said
in a note to clients. “Yet he is also a threat to engage in
broad principal forgiveness and to expand the HARP refinancing
program.”

Watt would be taking over as independent regulator at a
pivotal time for the two government-sponsored enterprises, which
provide liquidity to the housing market by packaging loans into
securities on which they guarantee payments of principal and
interest. FHFA’s director has the power to set and modify terms
for the 50 percent of existing U.S. mortgages owned or backed by
Fannie Mae and Freddie Mac. (FMCC)

Acting Director

Watt would replace FHFA Acting Director Edward J. DeMarco,
whose focus during his four-year tenure has been on improving
the companies’ bottom line and conserving assets for taxpayers.
Fannie Mae and Freddie Mac received a $187.5 billion bailout
from the U.S. Treasury after they were seized by regulators in
the midst of the 2008 financial crisis.

The two companies have begun posting record profits and
sending billions of dollars in dividends to the Treasury as the
housing market rebounds. At the same time, Republicans and
Democrats in the Senate are working on a bipartisan plan to wind
them down and replace them with a new housing finance system.

In naming Watt, Obama was responding to months of pressure
from housing activists and groups including the Congressional
Black Caucus who wanted an FHFA director who would place more
emphasis on aiding financially struggling borrowers.

Watt may reverse DeMarco’s ruling prohibiting Fannie Mae
and Freddie Mac to cut the principal balance on delinquent
loans. DeMarco argued that policy would hurt taxpayers more than
it would help homeowners. Watt called for principal reduction as
a member of Congress; after his nomination, he said his
congressional positions wouldn’t dictate his views as a
regulator.

HARP Expansion

Mortgage industry participants are hoping Watt will expand
the Home Affordable Refinancing Program, or HARP, which allows
borrowers with Fannie Mae and Freddie Mac loans to lower their
interest rates even if they owe more than their homes are worth.
The current program applies to loans originated before June of
2009, and some housing advocates and lenders have been pressing
for it to be extended to more recent originations.

Certain Fannie Mae and Freddie Mac mortgage bonds slumped
on the potential for an expansion of HARP. Fannie Mae’s 5
percent securities underperformed similar duration Treasuries by
about 0.5 cent on the dollar for two days ending Friday, the
most this year, according to data compiled by Bloomberg.

Watt may also slow some of DeMarco’s efforts to gradually
wind down Fannie Mae and Freddie Mac’s operations in the absence
of action from lawmakers on a broader housing-finance overhaul.

Loan Limits

DeMarco has announced he wants to lower the maximum size of
loans the companies can purchase, raise the fees they charge to
guarantee loans, charge additional fees in states with long
foreclosure timelines, and cut the amount of financing they make
available for apartment-building loans.

Participants in the housing industry have pushed back
against some of those initiatives, saying they are premature as
the housing market is still recovering.

Senate Republicans, who approve of DeMarco’s policies,
blocked Watt’s confirmation in October when all but two of them
voted against moving his nomination to a final debate, leaving
Democrats short the 60 votes they needed at the time.

Senate Majority Leader Harry Reid, a Nevada Democrat, cited
that vote as one of the reasons to change the rules to require a
simple majority vote on nominees.

“Senate Republicans simply don’t like the consumer
protections Congressman Watt was nominated to develop and
implement,” Reid said during a speech on the Senate floor.

Watt, a lawyer, has served in Congress since 1992,
representing a district that includes the second-largest
concentration of the banking industry next to the New York
district that contains Wall Street, according to his website.

To contact the reporter on this story:
Clea Benson in Washington at
cbenson20@bloomberg.net

To contact the editor responsible for this story:
Maura Reynolds at
mreynolds34@bloomberg.net


Enlarge image
More Fannie Mae Borrower Aid Expected After Watt Confirmation

More Fannie Mae Borrower Aid Expected After Watt Confirmation

More Fannie Mae Borrower Aid Expected After Watt Confirmation

Mark Wilson/Getty Images

U.S. President Barack Obama congratulates U.S. Rep. Mel Watt, after nominating him to be the next director of the Federal Housing Finance Agency in Washington, DC. on May 1, 2013.

U.S. President Barack Obama congratulates U.S. Rep. Mel Watt, after nominating him to be the next director of the Federal Housing Finance Agency in Washington, DC. on May 1, 2013. Photographer: Mark Wilson/Getty Images


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