As head of the Federal Housing Finance Agency, a job he took a little over a year ago, Mel Watt must chart a short-term course for the still-troubled housing market, while he waits for his former colleagues on the Hill to come up with a more permanent solution.
So far, at least, key players on different sides of the debate have expressed measured support for his role as conservator of Fannie Mae and Freddie Mac.
"It's a tough job. He's in the middle between two competing forces — one that wants Fannie and Freddie to do more, and another that wants the GSEs to disappear," said John Taylor, president and chief executive of the National Community Reinvestment Coalition.
But he has also received significant criticism from those who worry his actions are making it more difficult to resolve the future of Fannie and Freddie.
As director of the FHFA, Watt will not dictate what ultimately happens to the GSEs — that's a mandate for Congress that has so far been left unaddressed. But his moves do help shape what will occur.
For those who would like the GSEs to be taken out of the equation entirely, Watt's efforts to ease credit standards and spur new lending are seen as shortsighted.
"He's certainly not focused on shrinking their footprint," said Mark Calabria, director of financial regulation studies at the Cato Institute. "Almost everything he has done makes it more likely that the status quo continues — he's not exactly being an agent for change."
Watt's stance is a departure from that of his predecessor, Edward DeMarco, who spent more than four years as acting director focusing on protecting taxpayers from additional losses and reducing the GSEs' presence in the mortgage market ahead of future legislative action.
While Watt has said he also views those goals as crucial, he's indicated that he plans to balance that with efforts to support the current functioning of the GSEs, and thus keep their dominate position in the housing market.
"FHFA is focused on how we manage the present — the present conservatorships of the enterprises and the present housing finance market under the present statutory mandates," he said at his first public speech in May.
"We have reformulated this goal [to reduce the GSEs] so that it no longer involves specific steps to contract the enterprises' market presence, which could have an adverse impact on liquidity. Instead, the 'reduce' goal focuses on ways to scale back Fannie Mae and Freddie Mac's overall risk exposure. This approach allows us to meet our mandates of upholding safety and soundness and ensuring broad market liquidity."
Earlier this month, he reported that the GSEs completed credit risk transfers last year on mortgages with more than $300 billion in unpaid principal balance, with roughly $270 billion in transfers expected for 2015.
"You can see that there should be multiple opportunities for private sector involvement in the risk transfer space in 2015," he told attendees at the Goldman Sachs Housing Finance Conference.
But the shift in strategy still comes at a potentially difficult time for the agency, after Fannie and Freddie reported sharply lower quarterly earnings last month, compared to a year ago. The bailout agreement for the GSEs includes a provision that shrinks their capital cushions over time, increasing the chances that the enterprises could need another draw from Treasury sometime in the coming years. FHFA's own watchdog recently released a report echoing those fears.
GOP lawmakers and other critics argue that Watt's policies — particularly a plan allowing the GSEs to buy mortgages with downpayments as low as 3% — would put even more risk on the books.
At the same time, those on the other end of the political spectrum would like to see the agency going further to help homeowners who are still struggling and those without access to credit.
Senate Democrats, presumably a natural ally for the former North Carolina congressman, blasted Watt in November for not yet implementing principal reductions for underwater borrowers — a decision he's said he's still weighing.
"You've been in office for nearly a year now, and you haven't helped a single family — not even one — by agreeing to a principal reduction," Sen. Elizabeth Warren, D-Mass., said at the Senate Banking hearing in November. "Why has this not been a priority for you?"
Some in the industry — even those who are otherwise supportive of Watt — have raised similar concerns about timing. The director's term is limited to just five years, and the agency is involved in a number of challenging, long-term projects, like creating a single security for the two GSEs.