On Dec. 10 , the Senate confirmed Rep. Mel Watt (D-North ^Carolina) as the new director of the Federal Housing Finance Agency (FHFA). Watt replaces longtime Acting Director Edward DeMarco , a holdover from the prior administration. U The Obama administration's nomination for FHFA director won approval by the Senate largely as a result of a rules change orchestrated by Senate Majority Leader Harry Reid (D- Nevada ) to help unlock a logjam of judicial nominations awaiting confirmation. Votes on many of those nominees had been sidetracked by filibuster threats in the Senate . With the rule change, Watt's nomination benefited because it needed only a simple majority vote. He won approval on Dec. 10 and will officially take over the reins of the FHFA-the federal agency with oversight authority over the government-sponsored enterprises (GSEs). Many applauded the Watt appointment. It holds the potential to bring a marked shift in policy on some issues. DeMarco had attracted some outspoken critics over his position to not push the GSEs to pursue widespread principal reduction for distressed borrowers. DeMarco sought to safeguard the assets of the GSEs while in conservatorship and protect the taxpayers for undue losses. He also was actively pursuing a strategic plan to ultimately bring more private capital into the housing finance system and gradually wind down the dominant role played by Fannie Mae and Freddie Mac in the wake of the housing crisis. Pursuant to the goals outlined in the FHFA strategic plan, Acting Director DeMarco announced an additional increase in guarantee fees (g-fees) for Fannie and Freddie loans the day before Watt was confirmed. A Dec. 9 press release announcing the hike in guarantee fees explains that the fee increase will have three components: 1) an increase of 10 basis points in the base g-fee (or ongoing g-fee) for all mortgages; 2) an update to the upfront g-fee grid to better align pricing with the credit risk characteristics of the borrower; and 3) elimination of the upfront 25-basis-point adverse-market fee that has been assessed on all loans bought by the GSEs since 2008, except in the four states where foreclosure carrying costs are more than two standard deviations greater than the national average. In announcing the hike in guarantee fees, DeMarco said, "The new pricing continues the gradual progression toward more market-based prices, closer to the pricing one might expect to see if mortgage credit risk was borne solely by private capital. The price changes provide better protection of and return to taxpayers, who are providing the capital support that keeps these companies operating." The changing of the guard at the FHFA is expected to bring a new approach to housing policy on several fronts. Significantly, it comes at a time when the housing finance system is being completely rethought by Congress and the administration. The role of the GSEs going forward is being totally reevaluated, and Watt will play a significant role in the policy rollout. The Mortgage Bankers Association (MBA) commended the Watt confirmation. E.J. Burke , MBA chairman, said in a press statement, "MBA commends the confirmation of Mel Watt as the next director of the Federal Housing Finance Agency . Because he brings more than two decades of work on the House Financial Services Committee , he will have a strong base of understanding on a wide variety of public policy issues related to housing finance. Additionally we would like to thank Acting Director Ed DeMarco for working hard to address the major issues facing the real estate finance industry." Burke added, "MBA looks forward to working with Director Watt on developing and implementing ideas to improve the function of the secondary mortgage market. Fannie Mae and Freddie Mac have been in conservatorship for more than five years, and it's well past time to move forward on reform. As director of FHFA, Congressman Watt will have a historic opportunity to shape the secondary mortgage market and the government's role in housing." MBA was joined by others in the housing industry, consumer advocacy groups, as well as leading players on Capitol Hill , in welcoming the new FHFA director. Shaun Donovan , secretary of the Department of Housing and Urban Development (HUD), issued a statement that said, "Today's confirmation of Mel Watt represents an important step for our housing market's continued recovery. After decades in both the public and private sectors, Mel has developed a proven track record of protecting consumers, fighting abuses, championing economic growth and working across the aisle on important issues that benefit the common good." Donovan added, "He brings a wealth of experience and dedication to his new position as director of the Federal Housing Finance Agency . I am confident that his tenure will be marked by progress. I look forward to working closely with Mel to further stabilize and strengthen the housing market so that it provides opportunity for all responsible families." Chairman of the Senate Banking, Housing and Urban Affairs Committee Tim Johnson (D- South Dakota ) said, "Congressman Watt has over 40 years of experience in housing, real estate and other financial services issues, which will serve him well as he leads the agency and helps advance housing finance reform efforts. It has been over five years since the FHFA's inception, and this is the first time we will have a confirmed director. Congressman Watt's confirmation will provide the housing market more certainty as our economy continues to recover from the financial crisis." Some of the issues on the table for possible re-evaluation by the newly confirmed director include a move under DeMarco to scale back the GSEs' multifamily businesses. The agency endorsed a policy requiring Fannie and Freddie to reduce their multifamily business by 10 percent in 2013 from their 2012 purchase levels. And principal reduction on GSE loans will also likely get another look by Watt. In a column posted on The Huffmgton Post website on Dec. 16 by Eric Rodriguez , vice president, Office of Research, Advocacy and Legislation with the National Council of La Raza (NCLR), the group endorsed Watt as someone who "brings fresh ideas and new resolve to the FHFA during a time when struggling homeowners need it most." The column mentioned that while NCLR has testified frequently before the House of Representatives Committee on Financial Services "in support of principal reduction, DeMarco has long opposed the policy." Principal reduction on GSE loans will also likely get another look by Watt.
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