How FHFA could reform housing finance if Congress doesn’t
By Ian McKendry
If Congress can’t get a housing finance reform bill passed by the midterm elections, the Trump administration and Federal Housing Finance Agency may chart a future for Fannie Mae and Freddie Mac without lawmakers’ input. As conservator, FHFA Director Mel Watt has substantial leeway to remake the government-sponsored enterprises. The Housing and Economic Reform Act of 2008 gives the FHFA “almost unlimited authority over what it can do to Fannie, Freddie, creditors and shareholders in extremis,” according to a report by Federal Financial Analytics. .. Karen Shaw Petrou, managing partner at Federal Financial Analytics, said in an interview that Watt and Treasury Secretary Steven Mnuchin have clear incentives to end the conservatorship of Fannie and Freddie if Congress doesn’t act. “Fannie and Freddie are zombies right now. They are really big, really systemic zombies and the market isn’t functioning properly for lots of different reasons,” Petrou said. “The incentives are the risks of perpetuated limbo, which are significant in terms of long-term risk to the Treasury [and] continuing reliance on two conservatorships for 80% — 90% of the U.S. mortgage finance system, which impedes any number of objectives private institutions have.”