Secondary

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.

National Mortgage News - - Contents - By Han­nah Lang

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.

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