What to expect from a Watt FHFA

by Ryan Smith25 Nov 2013
Now that the Senate has invoked the nuclear option, making it effectively impossible for Republicans to block President Obama’s nominees, there seems to be little standing in the way of Rep. Mel Watt’s confirmation as the next head of the Federal Housing Finance Agency. But what policy changes can the industry expect if the North Carolina Democrat does take the helm at the FHFA?

Acting FHFA Director Edward DeMarco has made improving the bottom lines of Fannie Mae and Freddie Mac the focus of his four years heading the agency. He’s cut back on multifamily financing, increased fees and promised to reduce the maximum loan limits for the agencies. Many observers think Watt, on the other hand, would shift the agency’s focus to give more aid to struggling homeowners, according to a Bloomberg report.

“We believe he is less inclined to lower the conforming loan limit, raise guarantee fees or take other steps that could make housing finance more expensive,” said Jaret Seiberg, an analyst for Guggenheim Securities LLC.

Watt could also reverse a rule, put in place by DeMarco, that forbids Fannie and Freddie from cutting the principal balance on delinquent loans. many industry insiders also think he will expand the Home Affordable Refinance Program (HARP), which lets borrowers lower their interest rates.

Many observers also think Watt would roll back one of DeMarco’s most deeply unpopular initiatives – his plan to lower the maximum loan limits for Fannie and Freddie. Industry groups universally panned the idea, and congressional lawmakers on both sides of the aisle have said DeMarco lacks the authority to make the cuts. DeMarco, however, has been adamant that he would lower the loan limits sometime next year.
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