Fannie Mae-No Politics (FNMA)

[HGG]

President Barack Obama said on Wednesday he would name Rep. Mel Watt, a North Carolina Democrat, to lead the regulatory agency that controls Fannie Mae FNMA -24.84% and Freddie Mac FMCC -25.33%.

In an interview on Thursday, Mr. Watt offered few specifics about how he would lead the agency. On the politically charged issue of allowing Fannie and Freddie to modify mortgages by cutting loan balances, Mr. Watt said it was too soon to tell if he would revisit the decision of the Federal Housing Finance Agency’s acting director, Edward DeMarco, against permitting such write-downs.

What follows is an edited and condensed version of the interview:

WSJ: What would be the biggest difference between having you in that position and Mr. DeMarco?

Mr. Watt: I don’t know that I can answer that—perhaps none. I won’t know the answer until I get over there and get access to information… I don’t know that any decisions that I would make would be different from the ones that he has made.

WSJ: What should be the mission of the FHFA, and how would you measure success in achieving those goals?

Mr. Watt: I’m not sure I can answer that question, either. Obviously, the mission of the FHFA—the primary mission is to safeguard what is already there and, secondarily, to be a resource for people who are trying to work [towards] what the future will bring. But again, I think we may be putting the cart before the horse to start having me speculating about what I would be doing to advance those two things.

WSJ: What do you think are the most important issues facing the FHFA and the broader housing-finance space right now?

Mr. Watt: I don’t think I can answer that question…Obviously, I am aware as a result of being on the financial services committee and the whole series of … hearings we’ve had [that] there are challenges. We want to transfer as much of this back to the private sector as the private sector can take—and without an explicit or implicit government guarantee. But there are constraints to doing that, and we have to be very careful about how we do it. Those are challenges; safeguarding what we are already into is probably the primary challenge. How you do both of those things—I’m really not in a position to comment on at this point.

WSJ: For refusing to permit principal write-downs, Mr. DeMarco has faced a storm of criticism from the left, including many people who are supporting you in your upcoming confirmation hearing. Should that decision be revisited?

Mr. Watt: I can’t answer that question either. Again, I don’t have access to the information that Acting Director DeMarco has had. I don’t know what the timing would be of when I would get over there. It might be an issue whose time has already passed. And there may be information that would lead me to the same conclusion that they have already reached, if the issue is still a timely issue to consider. I don’t know how I would come down on that. The fact that I have expressed myself as a member of Congress shouldn’t be taken as an indication that I would necessarily reach the same position in a position where I was regulating the two entities….

WSJ: As congressman you supported principal write-downs, but you’re saying you might approach the issue differently as the agency’s director?

Mr. Watt: I was in a different position at that time. I was a member of Congress advocating for a different constituency with a different set of responsibilities. My responsibility as a director would be to evaluate all of the information and make a sound decision. It could very well lead me to the same conclusion that the existing acting director has reached. Again, we don’t even know the issue will continue to be timely.

WSJ: You may have seen the reports that protestors, upset over the decision, camped out at Mr. DeMarco’s home in Maryland. Do you feel pressure to support principal write-downs?

Mr. Watt: No. I wouldn’t. People camp out at my office sometimes—I’ve been through that before. You try to make a good public policy decision, and I think I have a strong reputation for doing exactly that regardless of what the pressures are.

WSJ: One criticism that was made yesterday by some Senate Republicans is that you did too little to push for tighter regulation of Fannie Mae and Freddie Mac—that when it came to the GSEs, you were too comfortable with the status quo. Sen. Bob Corker said putting you in charge of the FHFA would be like having the fox guard the henhouse. What would you say to those critics?

Mr. Watt: I wouldn’t say anything to the critics. I think there are sufficient answers to all of those things, but I’m not getting into a public debate [right now] with anyone with this. I’m looking forward to going to sit with Sen. Corker…. I can understand how he would raise those concerns. If I were in his position, I might be expressing the same concerns. I will encourage him to look at my record and if he does, I’m sure he’ll find that I was the first person in Congress to file an anti-predatory lending bill. It was four to six years before the financial services meltdown. We actually got to about the same place in Dodd-Frank that the first bill was advocating for…We’ll have that conversation with Sen. Corker and with all the members of the committee. I certainly am not trying to debate that in the newspaper.

WSJ: Given that you are the president’s nominee for this job, what kind of relationship do you expect to have with the White House and the Treasury?

Mr. Watt: This is an independent agency. I expect it to be treated as an independent agency. I expect the director to act as an independent agent. But the statute does say the president has the prerogative to nominate, and he has done that.

WSJ: What are the most important components for any overhaul of the housing-finance market?

Mr. Watt: I can’t comment on that….

WSJ: Should Fannie and Freddie be wound down?

Mr. Watt: There is general—almost unanimous—consensus that we should move as much of this back into the private sector as quickly as can be done. There’s virtual unanimity.

WSJ: It’s not clear that Congress or the White House is going to address the future of Fannie and Freddie any time soon. To the extent that the current holding pattern continues, what sort of steps do you think the FHFA should take for that interim period, however long it lasts?

Mr. Watt: Whatever responsibilities Congress sees fit to the FHFA, we have to play them out in a responsible way. But I don’t think it’s my role to be defining what those responsibilities are.

http://blogs.wsj.com/developments/2013/05/02/qa-what-watt-would-do-as-fannie-maes-regulator/