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
"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
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
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
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
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.
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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."
(Reporting by Margaret Chadbourn; editing by Prudence Crowther)
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