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Replies to post #284960 on Fannie Mae (FNMA)
02/11/15 8:41 AM
M. Mulvaney (Momentarily Rendered Speechless)
“… My understanding, and again I’m new to this, is that your agreement with the Treasury is an agreement right?”
M. Watt
“That’s correct”
M. Mulvaney
“How did an agreement - Trump the Law?”
M. Watt
“Well, I-I think the law got trumped when they uh, went into conservatorship and the taxpayers had to ante up one $187 billion dollars and there had – and so an agreement was made--”
M. Watt (speaks frantically)
“--that was before I got there, I didn’t negotiate the agreement but the um, the agreement was in place when I became the director of this agency.”
M. Mulvaney
“But you would agree typically an agreement between one agency and another department of government cannot trump the law, you can’t get around the law – (cut off by M. Watt)”
M. Watt
“I absolutely agree with that.”
Hi everyone, I haven't had much time to post - however I was watching the Hearing for Sustainable Housing and Finance - with testimony from Melvin Watt; back from 1/27/2015. I went ahead and wrote down some of the conversations and outlined some I felt were important.
Be well,
-Zargis
Referencing the recorded audio video here:
http://www.c-span.org/video/?324024-1/hearing-sustainable-housing-finance
Rep. John Carney of Delaware converses with Melvin Watt
Video Reference Time: 2:36:00 – 2:42:00
J. Carney
“You have said several times that you’re not going to comment on GSE reforms and that’s a legislative responsibility. But have made some public comments on if it’s necessary or not. Could you comment for us now about the sustainability of the current situation, what we should be concerned about without going into the specifics about what we should do?”
M. Watt
“Well, there’s nothing worse that’s found in this area of the market than uncertainty and the longer this drags out, the more uncertainty there is. So you have that risk and imperative for congress to do something. ...And that’s not about what they do, but providing more certainty… We have challenges at Fannie and Freddie maintaining an employee base, in this environment because they do not know what the future of Fannie and Freddie is. So, there is multiple implications that follow from the failure to do GSE reforms.”
J. Carney
“So should this be a high priority for us, the congress and the legislation to get that done I mean, when I first came here the former chairman was criticizing the administration for not doing anything on GSE reform, the former ranking member Mr. Frank was criticizing republicans for not doing anything on GSE reform. Now there have been a lot of proposals, I’m part of a team with Mr. Hymes and Mr. Delaney that have come up with a proposal, now I’d like to ask you do you think it’s time for that to get done?”
M. Watt
“Well I would say implications of not doing it, for me to put a priority on it, I think is an inappropriate role for me because there are lot of things that congress deals with that are priorities, so it’s just not my role to set those.”
Rep. South Carolina Mick Mulvaney and Melvin Watt
Reference Time: 1:59:00 – 2:04:45
Please note that Mulvaney references suspensions being lifted which now allow Fannie Mae and Freddie Mac to send funding to the Housing Trust Fund and Capital Magnet Fund once again. This was previously stopped after entering conservatorship to aid the GSEs in becoming stable.
M. Mulvaney
“Regarding the statutes, what statute did you rely on in ending the suspensions?”
M. Watt
“The Housing Trust fund Statute, the affordable housing allocations- that’s in HERA. It was re-authorized in congress by HERA.”
M. Mulvaney
“Correct, but that’s the statute that says when to suspend, correct? There is no statutory guidance for you on how to end a suspension is there?”
M. Watt
“It says the Director shall temporarily suspend, I would assume that the word temporarily has an inverse that says you can unsuspend. You know (stutters) technically you may be right that there is no statute that specifically says you can do this to unsuspend but you apply the same criteria to suspend and unsuspend and that’s what we did.”
M. Mulvaney
“I think that’s fair, but by the same token the mandate to suspend, is not, there’s no discretion there, you shall suspend if you find one of these three conditions, correct?”
M.Watt
“Yeah, and-and I Interpret it the same way, you shall unsuspend if you find these three things don’t apply anymore.”
M. Mulvaney
“That these things don’t apply, then let’s walk through them, it says that they contribute to the financial instability of the enterprise, causing / would cause the enterprise to be classified as undercapitalized, or preventing / prevent them from doing their capital restoration plan. But I heard you say something to Mr. Duffy earlier that was new. Which was a reference to the Fannie and Freddie making a profit, that’s not in the statute right? That’s not one of the factors you can consider in making a decision to suspend or end a suspension is it?”
M. Watt
“Well, number one says are contributing or would contribute to the financial instability of the enterprises. Um, if you are evaluating the financial stability or instability of the enterprises…”
M. Mulvaney (Interrupts)
"Is Fannie Stable?"
M. Watt (continues)
“…the primary factor you’re looking at is whether they’re making money or not.”
M. Mulvaney
“Oh, really? So whether a bank is making money is the only issue we look at as to whether or not they are stable?
Is that what you are saying? If bank of America is making a profit, then therefore they must be stable?”
M. Watt
“I don’t make decisions based on bank of America, I’m following the statute that was written, that applies to the Federal Housing Finance Agency.”
M. Mulvaney
“And I’m trying to press you on that. Is Fannie Stable?”
M. Watt
“We think it is and we built into the decision to reverse the suspension prudent reasonable safeguards in the event that uh, we go back in the other direction.”
M. Mulvaney
“Again, and I appreciate that and I read that in the letter; it says if we ever have to go back to the treasury we’ll suspend the payments – I get that. Not in the statute is it? The protection you supposedly put in the letter is not part of the statutory consideration. I hear what you’re saying Mr. Watt and I think it’s a good idea, but it’s not statutory, you can’t take the position you’re following the statute and then go well, what we’re really considering is profitability and don’t worry because we put something in the letter that says if we ever have to go back to treasury we’ll stop the suspension. You’re rewriting the law aren’t you?”
M. Watt
“Well, I’m following the conservatorship statute there representative Malvaney.”
M. Mulvaney
“Come with me to number two then regarding um, the undercapitalized. Because I think you’ve taken the position several times that your agreement with the treasury moots this section, is that - is that fair?”
M. Watt
“Yes.”
M. Mulvaney (Momentarily Rendered Speechless)
“… My understanding, and again I’m new to this, is that your agreement with the Treasury is an agreement right?”
M. Watt
“That’s correct”
M. Mulvaney
“How did an agreement - Trump the Law?”
M. Watt
“Well, I-I think the law got trumped when they uh, went into conservatorship and the taxpayers had to ante up one $187 billion dollars and there had – and so an agreement was made--”
M. Watt (speaks frantically)
“--that was before I got there, I didn’t negotiate the agreement but the um, the agreement was in place when I became the director of this agency.”
M. Mulvaney
“But you would agree typically an agreement between one agency and another department of government cannot trump the law, you can’t get around the law – (cut off by M. Watt)”
M. Watt
“I absolutely agree with that.”
M. Mulvaney
“So if the conservatorship statute doesn’t explicitly repeal section B2, then section B2 is still valid law.”
M. Watt
“I don’t agree with that, but uh I mean understand what you’re saying. I just disagree with you.”
M. Mulvaney
“Why is that, if the conservatorship statute doesn’t speak to B2, why is B2 not good law?”
M. Watt
“Well, I-it just does not apply, uh I don’t, I’m not sure- (Cut off)”
M. Mulvaney (interrupts)
“Well what’s your-(Cut off)”
M. Watt (speaking louder and again frantic)
“--We are engaging in a legal argument here that uh uh…”
M. Mulvaney (interrupts)
“That’s what were supposed to do isn’t it?”
M. Watt (still frantic)
“…If you all didn’t want to fund the housing trust fund, you have the authority to stop the funding of the housing trust fund- (interrupted)”
M. Mulvaney
“And we exercised that authority didn’t we?”
M. Watt (still frantic – continues as if not interrupted)
“…but don’t expect me to disregard the law and – and, and do it for you if you want to do that I mean that’s in your congressional authority to do that.”
M. Mulvaney
“Great suggestion Mr. Watt we did just that, we said under these certain circumstances we don’t think we should be funding the trust fund and all we’re asking you to do is follow the law, and if you believe it’s undercapitalized or you believe it’s unstable you should stop the payments. I yield back.”
NOTE: Hence, by Melvin Watt not stopping payments to the housing trust fund, he is in effect saying Fannie Mae and Freddie Mac are stable.
