Waters, Brown Ask FHFA for Details on GSE Reform Plan

Last week, Acting Federal Housing Finance Agency Director Joseph Otting surprised staff, Congress and the real estate finance industry by announcing the White House would submit a plan to end government control of Fannie Mae and Freddie Mac next month, without legislation.

On Friday, the chair of the House Financial Services Committee, Rep. Maxine Waters, D-Calif., and the Ranking Member of the Senate Banking Committee, Sen. Sherrod Brown, D-Ohio, said, essentially, “not so fast.” In a letter, Waters and Brown asked Otting to explain his comments and provide the committee with details of the plan by Feb. 1.

“To date, we have not seen a comprehensive statement from the White House and Treasury Department under the Trump Administration providing their views on regulation of the housing finance system,” the letter said. “Additionally, your comments call into question the independence of the FHFA under your leadership.”

The letter (https://financialservices.house.gov/uploadedfiles/2019.1.25.ltr_to_comptrollerotting.fhfa.hera.pdf) comes amid renewed enthusiasm in the 116th Congress on GSE reform, which the Mortgage Bankers Association has called “the last piece of unfinished business from the 2008 financial crisis.” Leaders in the House and Senate said they would explore legislative solutions to reform Fannie Mae and Freddie Mac, which have been in government conservatorship since September 2008.

In 2017, MBA issued a white paper, GSE Reform: Creating a Sustainable, More Vibrant Secondary Mortgage Market, which outlines key princples and guardrails to guide the reform effort and provides a detailed picture of a new secondary market end state. The paper is available at https://www.mba.org/issues/gse-reform.

In June, the Trump Administration proposed reforms that included many core principles MBA has long advocated for, such as an explicit government guarantee on mortgage-backed securities only as a catastrophic backstop, allowing for multiple guarantors and ensuring small lender access (https://www.whitehouse.gov/wp-content/uploads/2018/06/Government-Reform-and-Reorg-Plan.pdf).

Earlier this month the Administration appointed Otting (who also serves as Comptroller of the Currency) as FHFA Acting Director when former Director Mel Watt’s term expired Jan. 6. In a meeting with FHFA staff last week, Otting told employees the Administration would end government control of Fannie Mae and Freddie Mac without legislation from Congress.

“The Treasury and White House viewpoint is that the [FHFA] director and the secretary of Treasury have tremendous authority and that they would act, I think, independent of legislation if they thought it was the right thing to do,” Otting told FHFA staff. He pledged “significant headway” on an overhaul within six to 18 months.

However, the Waters/Brown letter appears to reflect Democrats’ concerns that the Administration is bypassing Congress’s role in crafting a legislative solution to the GSEs’ congressionally directed role in supporting a broad, national housing finance market. They called on Otting to explain his recent comments to staff, reminding him of the Committees’ jurisdiction over FHFA.

The letter also noted Congress gave the FHFA Director responsibility to ensure that Fannie Mae, Freddie Mac, and the Federal Home Loan Banks carry out their statutory missions and comply with all legal requirements, including oversight of the safety and soundness of each entity’s operations and their contributions to a liquid national housing finance market, including for low- and moderate-income households.[

“Each part of this charge is critical to the continued stability of our housing finance system,” the letter said. “The Enterprises’ activities are especially impactful in traditionally underserved parts of the market, including low- and moderate-income households, rural areas, affordable rental housing, and manufactured housing. In the two most recently enacted bills to strengthen oversight of the Enterprises, Congress expressed bipartisan support for the Enterprises’ continued and expanded role in serving underserved markets. To ensure that the Enterprises fulfilled this duty, Congress directed their regulator, FHFA, to monitor and enforce the Enterprises’ activity across each of these market segments.”