The Senate Committee on Banking, Housing, and Urban Affairs held an oversight hearing on the Federal Housing Finance Agency (FHFA) on November 19. FHFA Director Mel Watt was the sole witness. During the hearing, Senators Jack Reed (D-RI) and Robert Menendez (D-NJ) urged Mr. Watt to lift FHFA’s temporary suspension on Fannie Mae and Freddie Mac funds designated for the National Housing Trust Fund (NHTF). Several senators also pressed Mr. Watt on the status of implementation of protections for struggling homeowners.
Senator Reed said, “The NHTF and the Capital Magnet Fund payments out of the Government Sponsored Enterprises have been suspended and we have an affordable housing crisis. I don’t have to tell you that.” Senator Reed said he joined 33 Senators earlier in the year to urge Mr. Watt to begin payments into the funds (see Memo, 1/24). Senator Reed also noted that starting the funding for the NHTF would alleviate some housing needs. Mr. Watt responded, stating that he received the letter from the 33 Senators “as well as letters from the other side” (see Memo, 2/28), and added, “I’ve indicated that before the end of this year we will address this issue directly.”
“On the housing trust fund,” Mr. Watt said, “there are specific statutory provisions that indicate when the contributions to the housing trust fund can be suspended. Those statutory provisions have not changed…That does not mean that the circumstances that triggered the termination may not have changed. That’s what we are evaluating at this point… When we do announce a decision we will announce it with the details of why we announced it.”
Senator Reed replied, “I’m confident of your skill and agility of balancing all of these things in reaching the right side of the chasm.” Senator Menendez, discussing the NHTF, said that the “reality is that GSEs are generating profits, and we don’t see the allocation [to the NHTF]. This is going to be critical.” Mr. Watt stressed that FHFA’s role, as conservator of Fannie Mae and Freddie Mac since the beginning of the housing crisis in 2008, is to ensure their safety and soundness.
In his opening statement, Committee Chair Tim Johnson (D-SD) urged his colleagues to keep working toward a more certain future for Fannie Mae and Freddie Mac. If this cannot happen, Chair Johnson said, he urged Mr. Watt to engage the Department of the Treasury in talks to end the conservatorship.
Committee Ranking Member Mike Crapo (R-ID) countered, saying that Mr. Watt must continue as conservator until Congress alone acts to end conservatorship. In the meantime, Senator Crapo stated that Mr. Watt’s job is to preserve and protect the assets of Fannie Mae and Freddie Mac. “I understand that some have been pressuring FHFA to implement proposals that they favor, but that is not the role of the conservator,” Senator Crapo said. He urged Mr. Watt to “renounce any demand to direct revenues anywhere besides taxpayers.”
Regarding single-family mortgage issues, Senator Sherrod Brown (D-OH) expressed concern that the third party debt collectors used by Fannie Mae and Freddie Mac are demanding payments from borrowers who have already documented that they cannot repay. Mr. Watt responded that the agency is reviewing those practices. He said, “Already eliminated are borrowers who are aged 65 or older, active military borrowers, bankrupt borrowers, and borrowers pursuing short sales and deeds in lieu of foreclosure, and are looking at value of what’s left – are we really getting more benefit or doing more harm out of pursuing deficiency judgments.”
Senator Elizabeth Warren (D-MA) pressed Mr. Watt on FHFA’s lack of action to reduce mortgage principal for the nation’s 5.3 million underwater borrowers. “You have not helped a single family. I want to know why this hasn’t been a priority for you?” Senator Warren asked. Mr. Watt responded that this is a very difficult issue and that FHFA has transferred some loans to lenders and allowed them to do principal reduction on those loans.
The archived webcast of the hearing is at, http://www.banking.senate.gov/public/index.cfm?FuseAction=Hearings.Hearing&Hearing_ID=6d6117b6-1099-4790-b7e9-3c018fcc64f5
Senator Johnson’s statement is at, http://www.banking.senate.gov/public/index.cfm?FuseAction=Newsroom.PressReleases&ContentRecord_id=d523b5b6-0efe-7979-dff3-6e03cfd71dfa