Something that didn’t get that much attention amid the emerging budget deal in Washington: You may remember Democrats recently changed the rules on filibusters — now the Senate can confirm presidential nominees with a simple majority. And this week the Senate used that new power.
Former Rep. Mel Watt, D-N.C., is now confirmed to head the agency that controls Fannie Mae and Freddie Mac.
For people who watch the U.S. housing market, this is a very big deal.
Most Americans probably don’t realize that these two hugely important companies, Fannie and Freddie, are actually controlled by a bureaucrat in a little office in Washington.
That one bureaucrat has a lot of influence when it comes to the housing market.
The Power of the Job
Mel Watt will now be heading up the FHFA. Most Americans probably couldn’t tell you what that acronym stands for. It’s the Federal Housing Finance Agency. It controls Fannie and Freddie. And that means it controls a lot.
- More than 90 percent of all new mortgages in the United States flow through Fannie and Freddie (and the FHA). So these companies are vital. They control that massive river of money flowing into mortgages.
- They get to decide who qualifies to buy a house or refinance and who doesn’t.
- They have hundreds of billions of dollars in mortgage investments that they oversee.
- Every major decision Fannie and Freddie make has to be approved by the head of the FHFA — soon to be Watt. Fannie and Freddie used to be big quasi-private companies with chief executive officers and shareholders who held stock in the company. But then Fannie and Freddie needed a $200 billion bailout after the housing market collapsed. Congress gave them punishing terms under the bailout that made the companies wards of the state. The government essentially took them over and their CEOs are almost like marionettes — controlled by the federal bureaucrat.
‘Shifting the Leverage’
The official who has been in charge of the FHFA is Edward DeMarco. He’s been controversial. He locked horns with the Obama administration. The administration wanted to use Fannie and Freddie to help more Americans refinance. A couple of years ago, there were millions of Americans stuck in high-interest-rate mortgages. Democrats said letting those homeowners refinance would help stimulate the economy. DeMarco was seen as dragging his feet or outright blocking some of those efforts.
Republicans see DeMarco differently. They think his approach has protected taxpayers. Fannie and Freddie ended up drawing down nearly $200 billion in bailout money from the Treasury. DeMarco wanted to get that money back, and he’s done that. Fannie and Freddie have paid back all that money. (Though under the terms of the bailout they don’t technically get out from under their $200 billion debt since all those payments essentially are considered interest payments.)
The thinking is that Watt will have a different approach.
One housing policy expert close to policymakers in Washington said on background that getting Watt confirmed was the single most important thing for Democrats to do if they want a strong hand in crafting the future of the mortgage finance system. He said that’s because his confirmation flips the leverage 180 degrees — to favor Democrats instead of Republicans.
One example: DeMarco was starting to wind down Fannie and Freddie and tighten credit. Watt is expected to keep the money flowing more freely to the mortgage market. And that could give Democrats more time and leverage to push through reforms that they want.
Watt might also be more open to expanded initiatives to help homeowners who are struggling to make their mortgage payments.