Watt Testifies Before Senate Committee

At a hearing before the Senate Banking Committee today, FHFA Director Mel Watt highlighted the need for housing finance reform, noting that Congress must decide the future of Fannie Mae and Freddie Mac, including whether or not the enterprises should receive backing from the federal government.

Watt cautioned that the conservatorships “are not sustainable and they need to end as soon as Congress can chart the way forward.” He added that swift action is needed, as the capital buffer currently in place under the terms of the Senior Preferred Stock Purchase Agreements with the Treasury Department has been scaled back significantly and will reduce to zero on Jan. 1. “At that point, neither enterprise will have the ability to weather any loss it experiences without drawing further on taxpayer support,” Watt said.

In his opening statement, committee Chairman Mike Crapo (R-Idaho) raised concern about the risk taxpayers face under the current arrangement. “A housing finance system dependent on two government-sponsored enterprises in perpetual conservatorship is not a sustainable solution,” Crapo said. “Taxpayers today bear too much risk, and the government plays too big a role in the mortgage market.” He added that transferring risk away from the government into the private sector and away from taxpayers was “essential,” and urged FHFA to continue exploring options for risk transferring credit risk and incentivizing private sector participation.

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