Fannie Mae-No Politics (FNMA)

[navycmdr]

Trump Nominee to Face Questions on Future of 30-Year Mortgages

6:00 am ET February 14, 2019 (Dow Jones) By Andrew Ackerman

WASHINGTON -- The Trump administration's pick to help overhaul the way many Americans finance their home purchases is expected to face questions about the future of the popular 30-year-mortgage at his Senate confirmation hearing Thursday, people familiar with the matter said.

The Senate Banking Committee is considering the nomination of Mark Calabria to head the government's oversight of Fannie Mae and Freddie Mac. The mortgage-finance companies guarantee roughly half of U.S. home loans and have been under government control since the financial crisis. If confirmed, Mr. Calabria would play a pivotal role as head of the Federal Housing Finance Agency in making changes to the companies.

Mr. Calabria, a libertarian economist and senior aide to Vice President Mike Pence, is expected to face questions from lawmakers over his past calls for modifying the foundations of the U.S. mortgage market. While working at the libertarian think tank the Cato Institute from 2009 to 2017, Mr. Calabria advocated for curtailing government support for 30-year fixed-rate mortgages. These account for approximately 90% of new home loans, according to Mortgage Bankers Association data. He also called for banks to hold more of the loans they originate rather than selling them to Fannie, Freddie and other financing entities.

Fannie and Freddie don't make loans but instead buy them from lenders and package them as bonds. Their middleman role makes the 30-year fixed-rate mortgage more widely available by matching banks and other lenders with investors, such as pension funds that are willing to manage the interest-rate risk associated with long-term, fixed-rate mortgages.

As FHFA chief, Mr. Calabria would have the power to curtail Fannie and Freddie's purchases of 30-year loans. Mr. Calabria himself has such a loan on a District of Columbia property purchased in 2010, according to his nomination disclosures.

Jim Parrott, a former Obama administration housing adviser who is now an industry consultant, said the fact that Mr. Calabria has such a loan demonstrates its value. "It's not inconsistent that Mark would take advantage of the availability of a government-backed 30-year [mortgage] more than it would be for Bernie Sanders to pay only as much taxes as he owes. But it is a bit ironic."

Mr. Calabria didn't respond to a request for comment. He is expected to tell lawmakers Thursday that his goal, if confirmed, is to "carry out the clear intent of Congress, not to impose my own vision," according to a written copy of his remarks released ahead of the hearing.

Mr. Calabria has said the fact that most home loans are made for 30 years is risky, and shorter loan durations would be better given that the typical mortgage today has a life of about five years, while homeowners stay in their houses less than a decade on average. He has acknowledged that if the government pulled back from its support for 30-year loans, mortgage rates would increase, but he said the uptick would be small. Most housing experts say any effort to overhaul Fannie and Freddie should preserve government backing for 30-year, fixed-rate mortgages.

Administration officials say Mr. Calabria's nomination should be judged by the totality of his career, which includes working for the Senate banking panel, the Department of Housing and Urban Development and the National Association of Realtors. " Dr. Mark Calabria is a highly regarded expert on housing and housing finance," said White House spokeswoman Lindsay Walters.

In the Senate, Mr. Calabria also helped draft legislation that established the FHFA in 2008, shortly before the crisis.

Mr. Calabria could also face questions on a 2015 paper he co-wrote for a group of Fannie and Freddie investors that have sued over the postcrisis arrangement by which the Treasury Department collects Fannie and Freddie profits in exchange for its nearly open-ended financial support of the companies.

Democrats who have privately met with Mr. Calabria describe him as smart and personable. Still, most are unlikely to support him. "There is nothing in Dr. Calabria's record that leads me to believe that he will protect consumers in the housing market," said Sen. Sherrod Brown (D., Ohio), the top Democrat on the panel.

Republican support for Mr. Calabria is expected to be strong in the GOP-led Senate, making him likely to be confirmed in the coming months.

Discussions about the future of Fannie and Freddie have ebbed and flowed over the years, and lawmakers haven't reached any deal. The Trump administration wants to take another stab at overhauling the firms, and is preparing to release its own framework for a plan as early as this month.

Overhaul efforts by the Obama administration fizzled. The Obama White House issued a short "white paper" in early 2011 that sketched out three options for what could take the firms' place, but the plan died.

Conservative Republicans have called for a private market with no new federal guarantees. Some centrist Republicans and many Democrats have said a federal role is needed to preserve liquid markets for the popular 30-year fixed-rate mortgage. Democrats have also pushed for a system that ensures the mortgage market serves low- and moderate-income borrowers.

Mr. Crapo released a broad outline of a housing-finance overhaul earlier in February, seeking to strike a middle ground. Under the proposal, the government would provide a federal backstop for securities issued by Fannie and Freddie -- as well as those issued by new competitors. Fannie and Freddie would also return to private hands and face limits on their businesses under Mr. Crapo's proposal, which also envisions a new mortgage fee to fund affordable housing.

Write to Andrew Ackerman at [e-mail]

(END) Dow Jones Newswires

February 14, 2019 06:00 ET (11:00 GMT)

Copyright (c) 2019 Dow Jones & Company, Inc.