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Reform is on the Horizon: Watt & Mnuchin Assess

TreasuryFHFA Director Melvin Watt and Treasury Secretary Steven Mnuchin separately addressed the state of the GSEs Thursday. Mnuchin has previously suggested that the status quo for Fannie Mae and Freddie Mac would be changed in the near future. He touched on this again Thursday when discussing housing finance reform to the Senate Committee on Banking, Housing, and Urban Affairs.

“This has been an unresolved issue for far too long and one we are committed to fixing,” Mnuchin said. “We will ensure that there is both ample credit for housing and that we do not put taxpayers at risk. This Committee has done extensive work on this along with your work on community financial institution regulatory relief. My hope is that we can partner on both of these issues. I look forward to working with the Congress to develop a solution.”

During the conference, Mnuchin also addressed the domestic economic agenda. According to Mnuchin, it has been more than 30 years since the U.S. has had a comprehensive tax reform. He said that in conjunction with imprudent regulations, American prosperity has slowed.

“I believe that a goal of 3 percent GDP or higher economic growth is achievable is we make historic reforms to both taxes and regulation,” Mnuchin said during the hearing.

In his speech Thursday at The American Mortgage Conference, North Carolina Bankers Association, Watt highlighted the decisions made in the last nine years of conservatorship including the reforms to operations, practices and protocols in the Enterprises. Watt explained these reforms and warned that they are extremely important and should not be disregarded by Congress when working on housing finance reform.

“FHFA has taken steps to reform board governance and day-to-day operations of the Enterprises,” Watt said. “Enterprise leadership today—both their boards of directors and senior management—is significantly different from pre-conservatorship. With new committed leadership and with FHFA setting the course both through conservatorship decisions and through on-site regulatory oversight, Fannie Mae and Freddie Mac have significantly improved their risk management and operations.”

Watt explained the changes in risk of the Enterprises’ business model, changes in guarantee fees, securitization, loss mitigation, and elimination of volume-based discounts for larger lenders.

Despite the current state of the GSEs, according to MarketWatch, Mnuchin said the Treasury still expects payment of the dividend from Fannie and Freddie Mac per their agreement.

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