Senate Panel Holds FHFA Director Confirmation Hearing

The Senate Committee on Banking, Housing, and Urban Affairs held a nomination hearing on June 27 featuring Representative Mel Watt (D-NC), among nominees for other posts. Mr. Watt has been nominated by President Obama to be Director of the Federal Housing Finance Agency (FHFA), replacing current Acting Director Edward DeMarco. FHFA is the regulator and conservator of the government sponsored enterprises (GSEs) Fannie Mae and Freddie Mac. The GSEs have been in conservatorship since 2008. Mr. Watt was introduced by Senators Richard Burr (R-NC) and Kay Hagan (D-NC). Senator Burr characterized Mr. Watt as an “honest, kind, and truly thoughtful individual.”Committee Chair Tim Johnson (D-SD) started the questioning by asking Mr. Watt how his legislative experience would translate to the FHFA Director role, and whether he would be independent and pursue policies in the best interest of the public. Mr. Watt assured Chair Johnson of his commitment to neutrality and the public interest.In his opening statement, Committee Ranking Member Mike Crapo (R-ID) said, the “Director has virtually unchecked power,” and expressed uncertainty that Mr. Watt would be able to be a neutral agency head given his current position as a member of the House of Representatives. Ranking Member Crapo questioned how Mr. Watt planned to insulate himself from political “whims,” such as campaigns that have urged President Obama to replace Mr. DeMarco. Ranking Member Crapo asked Mr. Watt whether he viewed the GSEs’ current dividend payments to the Treasury as offsetting the government bailout of the entities—an amount of approximately $187 billion. Mr. Watt responded that the preferred stock agreement is not structured that way, and as such, none of the dividend payments are going towards paying down that debt. Ranking Member Crapo went on to ask if Mr. Watt believed there is a legal authority for the FHFA Director to use GSE funds to finance social initiatives or if it is the role of the FHFA Director to make business decisions that maximize the net worth of the GSEs. Mr. Watt responded that in the statute, the GSEs are allowed to do some things that may not yield the maximum return. He added that the GSEs are allowed to support housing for low and moderate income families for a reasonable return that might be less than what the GSEs would otherwise receive.In later questions, Ranking Member Crapo elaborated on his earlier line of inquiry about the authority of the GSEs to promote social initiatives. He said, “Some say that Fannie Mae and Freddie Mac should create a housing fund for loans that don’t work out,” and he asked if FHFA or Congress should have the authority to create such a fund. Mr. Watt responded that the Director has no role to establish such a fund. Mr. Watt then said with respect to funding the “housing trust fund,” he would evaluate how a decision to suspend contributions to it was made before and whether any new information has emerged that would result in a different outcome.(Shortly after HERA was enacted, the GSEs were taken into conservatorship and the contributions to the NHTF were temporarily suspended. NLIHC asserts that now that the GSEs are now profitable, the GSEs must start making these statutorily required contributions. This decision lies in the hands of the FHFA director. As of this writing, Mr. DeMarco has not commented on this issue.) Senator Bob Corker (R-TN) expressed his concern that the Director of FHFA “is a job that needs a real technician” and questions whether any politician “would be good at it.” Mr. Watt replied that the people who contributed to the foreclosure crisis and financial meltdown had technical qualifications, and yet the crisis still occurred. He said he would surround himself with stakeholders and work with them to transition from the current system. When Senator Corker asked if Mr. Watt would be willing the implement the wind down of Fannie Mae and Freddie Mac, Mr. Watt replied that he applauds the bipartisan effort that Senator Corker has made on housing finance reform (see article above in Memo) and said, “in my role, I would have to cooperate with anyone in the House of Senate that has any ideas about what the future of housing finance should be.”Democratic Senators on the Committee expressed their support for Mr. Watt’s nomination, but the prospects of Senate confirmation are uncertain as this point.View an archived hearing webcast and all witness testimony at: