The biggest impact may be to focus the administration’s efforts on selecting a nominee to succeed Director Mel Watt, whose term ends in January.
What FHFA scandals mean for agency’s future, GSE reform
The Federal Housing Finance Agency has faced a barrage of negative headlines lately, from a sexual harassment probe of Director Mel Watt to a court ruling declaring the agency’s leadership structure unconstitutional. But will the flood of bad news affect policy related to oversight of Fannie Mae and Freddie Mac?
Analysts say the biggest impact of all the attention — albeit negative attention — may be to elevate the profile of an agency that despite its relative obscurity poses significant personnel and policy questions that the administration will have to eventually address.
“It’s kind of turning D.C.’s attention to the future of housing finance a little bit more than it has been for some time,” said Ed Mills, a policy analyst at Raymond James.
In July, a three-judge panel for the U. S. Court of Appeals for the Fifth Circuit ruled that the agency’s leadership structure, in which a single director is shielded from presidential firing unless there is cause, violates the Constitution.
But a more explosive story broke just days later in a report by Politico about an investigation into allegations that Watt, an Obama appointee whose term ends in January, made inappropriate sexual advances toward an employee.
On Aug. 2, Politico also reported an investigation into the FHFA’s inspector general, Laura Wertheimer, for allegedly taking steps to undercut her office’s oversight of the agency in response to pressure from Watt.
Mills and others said the effects of the recent scandals on the agency’s current leadership — and how it handles the conservatorships of the GSEs — are likely limited, mainly because Watt is near the end of his term and attention has already begun to shift to who his successor will be.
“This would have a huge impact if this was in the first six months of the tenure, not in the last six months,” said Mills.
But if the administration had not been focused on selecting a new nominee to run the agency, the recent scandals may be accelerating that process. Attention to the agency could grow this month; the House Financial Services Committee announced an FHFA oversight hearing for no later than Sept. 27.
“Each one of these headlines ... brings more focus to the transition ahead more so than necessarily defining the transition,” said Isaac Boltansky, the director of policy research at Compass Point. “So at a minimum it’s just getting more attention within a White House that I think at times has not prioritized financial regulatory nominees in its to-do list.”
Still, Boltansky agreed that the recent developments likely will not impact broader discussions about FHFA reforms since the agency’s top leadership position is about to change over.
“If we were at a different point in the fiveyear term, I think that there would be more of a window for legislative consideration of the FHFA’s governance structure, but given that we’re a few months and possibly even less from President Trump getting to tap the next head of the FHFA, I seriously doubt that either chamber of Congress is likely to focus on this issue,” he said.
And analysts widely agreed that the agency being cast in a more negative light likely won’t have much bearing on efforts to reform the GSEs. Reform of the housing finance system has already been intractable enough.
“GSE reform has many complex economic and political moving parts and thus won’t be materially impacted by any one or two individuals,” said Mark Zandi, chief economist of Moody’s Analytics.
Some suggested the ultimate outcome of the court case over the agency’s constitutionality, before the Fifth Circuit, is a bigger factor in determining the agency’s future than the allegations facing Watt and the agency’s inspector general.