The former head of Fannie Mae’s and Freddie Mac’s chief regulator said a Senate hearing was a “constructive” step in moving toward taking the mortgage giants outside of government conservatorship.
Ed DeMarco, the former director of the Federal Housing Finance Agency, testified Tuesday on the outline put forward by Senate Banking Chairman Mike Crapo, the Idaho Republican, to reform the government-backed mortgage finance system, the first of two days of hearings.
Crapo said Tuesday he wanted to “bring to a close the conservatorship era,” while Sherrod Brown, the ranking member and Ohio Democrat, said the acting FHFA director has not disbursed funds for affordable housing opportunities.
DeMarco now is president of the Housing Policy Council that represents mortgage finance companies that originate, service and insure home loans.
“I was impressed the chairman moved from publishing an outline to having a series of hearings pretty quickly,” DeMarco said in an interview with MarketWatch after the hearing. He said that made sense rather than investing first in the details of legislative writing. “I think that can be constructive,” DeMarco said.
He had a memorable exchange with Sen. John Kennedy, the Louisiana Republican, who wanted to know what has happened since Fannie and Freddie were brought under conservatorship. DeMarco told the senator that, for 11 years, the FHFA has successfully kept those two companies’ systems operational, and done so in a way that investors still want to purchase the MBS.
“They’re charging plenty, if we reform them, and have a reformed system and take them out of conservatorship and put them in a multiple guarantor system as Chairman Crapo has proposed, at current pricing ... this would be a viable system,” DeMarco said at the hearing.
When Kennedy boiled down DeMarco’s assessment to “it’s Congress’s fault,” DeMarco replied that it was a complicated issue.
“I do think he was trying to make the point that this has gone on long enough, why can’t we get this wrapped up,” DeMarco told MarketWatch.
DeMarco pointed out that the first few years of conservatorship were spent putting out the fires of the housing crisis, on issues like foreclosure prevention and loss mitigation. Later the FHFA moved toward the building blocks of reform, like data standardization, the common securitization platform and the credit-risk transfer program.
DeMarco said the next step will be the likely confirmation of Mark Calabria to be director of the FHFA, who can spearhead the Trump administration’s involvement in the process. The FHFA is currently run on an acting basis by Joseph Otting, who also is the Comptroller of the Currency.
Fannie Mae FNMA, +3.07% and Freddie Mac FMCC, +4.10% over-the-counter shares advanced on Tuesday and have climbed about 150% this year.
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