Rep. Mel Watt, D-N.C., has been tapped by President Barack Obama as the new head of the agency that oversees the government-controlled mortgage companies Fannie Mae and Freddie Mac, but he's not divulging his thoughts about their future.
After being bailed out by taxpayers in 2008 and placed under the guidance of the Federal Housing Finance Agency, or FHFA, Fannie and Freddie posted record profits in 2012. Rising home prices, low mortgage rates and a boost in refinancing activity contributed to the profitability of the companies.
One of the most contentious issues facing the FHFA's acting director, Edward DeMarco, has been allowing Fannie and Freddie to write down mortgage amounts for borrowers who owe more on their loans than their home is worth. DeMarco has refused to permit it, saying that essentially taxpayers would be picking up more of the tab than they already have.
Although Watt supported principal write-downs while in Congress, he backed down in an interview with The Wall Street Journal. "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," he said. "My responsibility as a director would be to evaluate all of the information and make a sound decision."
In the interview, Watt largely avoided any specifics. When asked about the mission of the FHFA and the most important issues facing the agency, Watt was vague. The primary mission of the agency, he said, "is to safeguard what is already there and, secondarily, to be a resource for people who are trying to work (toward) what the future will bring."
DeMarco has said that the government should not be in the mortgage business and has proposed that Fannie and Freddie shrink their monopoly by forming a joint firm to securitize mortgages. Watt only said: "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."
To be fair, the head of the FHFA is under the direction of Congress and the White House, and neither has its plan for the future of Fannie and Freddie. "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," Watt said.
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