Housing industry experts expect congressional Republicans to focus on oversight of housing market regulators next year, instead of legislation.
Given the struggle to reach a consensus on what to do with Fannie Mae and Freddie Mac, industry officials are betting that House and Senate committee leaders will spend most of their time monitoring Mel Watt, the director of the Federal Housing Finance Agency (FHFA).
{mosads}Republicans are worried that Watt could push Fannie and Freddie back into their past practices, which led to a nearly $190 billion taxpayer bailout and government conservatorship in 2008.
Watt has told members of the Banking panels in both chambers that he agrees that Congress must act to wind down the mortgage giants and reduce the government’s role in the mortgage finance market.
But in the absence of legislation, Watt has forged ahead with changes, such as those aimed at easing Fannie and Freddie’s access to credit.
“Conservatorship cannot and should not be a permanent state,” he said at a recent hearing. “The role of Congress is to define what that future state is.”
Watt said he won’t weigh in on what path lawmakers should take but he reiterated that a lack of action “will have greater and greater cost to us.”
Jerry Howard, head of the National Association of Home Builders, said Watt has been “very forthcoming” and that the industry would look to him to do as much as possible, short of fundamental reform, to ensure the stability of the mortgage market.
Watt is tasked with maintaining the financial health of the government-controlled companies.
Industry advocates say there are three issues Watt can tackle without action by Congress — moving toward a single common security for Fannie and Freddie; creating a Common Securitization Platform; and continuing efforts on risk-sharing to shift the burden away from taxpayers.
Watt said the agency has moved forward on the trio of issues with more work still forthcoming.
Senate Banking Committee Chairman Tim Johnson (D-S.D.) raised the specter that Watt and the Treasury Department could, and should, consider terminating government control of the two companies based on the odds that a Republican Congress won’t produce the legislation needed to reduce the government’s role in the market.
Johnson called on Watt to “engage with the Treasury Department in talks to end the conservatorship” of Fannie and Freddie if Congress doesn’t find a legislative way forward.
“There’s only so much Treasury or FHFA can do, Congress has to define the scope and nature of the guarantee,” said Bill Killmer of the Mortgage Bankers Association. “And Congress has to charter the successors to Fannie and Freddie.”
Housing experts suggest that Johnson, who is retiring, raised the issue of Watt and Treasury acting as a way to prod Republicans to finally move forward after years of stalemate on Capitol Hill.
“Congress still needs to act, that basic fact won’t be changed,” said Paul Leonard with the Financial Services Roundtable’s Housing Policy Council.
A Treasury Department spokesman said that the Obama administration wouldn’t consider ending government control of Fannie and Freddie without legislation.
“The administration’s position has not changed,” the spokesman said. “Comprehensive housing finance reform legislation is the only way to end the conservatorship responsibly and transition to a new system that brings stability back to the housing market while protecting taxpayers.”
Meanwhile, Sen. Richard Shelby (R-Ala.) who is set to take over the Senate Banking Committee, has expressed a willingness to pore over the issue.
“A bad bill is a bad bill, I wouldn’t want a bad bill. I would never want to support or push for a bad piece of legislation,” he said.
“What we’ll see is if we can do a good bill, a comprehensive bill that would move us off the dime we’re on now.”
Still, housing experts maintain their stance that there is always the chance lawmakers could come together and craft a deal that President Obama would sign.
“So, I hope that Mr. Shelby, when he becomes chairman, will heed his own advice and work toward a bipartisan solution on this because we are very desperately in need of it,” Howard said.