FHFA’s Watt: Congress Needs to Move on GSE Reform

The director of the Federal Housing Finance Agency (FHFA) urged Congress needs to take responsibility for housing finance reform and offer a strategy to end federal conservatorship of the government-sponsored enterprises (GSEs).

 

In an appearance this morning before the U.S. Senate Committee on Banking, Housing and Urban Affairs, FHFA Director Mel Watt noted that while his regulatory can take credit for “many reforms” to the business models and operations of Fannie Mae and Freddie Mac, their conservatorship is not sustainable. Going forward, Watt stated that Congress must take the next step in determining the GSEs’ future.

 

“So, I want to reaffirm my strong belief that it is the role of Congress, not FHFA, to make these tough decisions that chart the path out of conservatorship and to the future housing finance system,” he said, adding that Congress needed to ask difficult questions on the future structure of the GSEs and to determine the depth and scope of their role in federal housing policy.

 

Watt also warned of the possibility that the GSEs could slip back into financial tumult. “Like any business, the Enterprises need some kind of buffer to shield against short-term operating losses,” he continued. “In fact, it is especially irresponsible for the Enterprises not to have such a limited buffer because a loss in any quarter would result in an additional draw of taxpayer support and reduce the fixed dollar commitment the Treasury Department has made to support the Enterprises. We reasonably foresee that this could erode investor confidence. This could stifle liquidity in the mortgage-backed securities market and could increase the cost of mortgage credit for borrowers.”

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