Federal Housing Finance Agency (FHFA) Director James Lockhart's imminent resignation will force the Obama administration to confront the tricky politics of reforming the government-sponsored enterprises sooner than planned.

When the White House released its regulatory reform proposal in June, it put off until next year the question of how Fannie Mae and Freddie Mac would look when they emerge from conservatorship. But faced with the task of finding a new leader for the Finance Agency, the administration will have to confront these questions earlier.

The administration has three basic options — privatization, nationalization or the status quo — and each would require different skills in any potential successor to Lockhart.

"With complete privatization, you would want someone more advanced in their career who can simply preside over the transition," said Thomas Stanton, a fellow of the National Academy of Public Administration. "For a government corporation, you want someone to help turn the GSEs into a different organization and be able to attract new leadership. If you're going to turn them back into GSEs, you probably need somebody who is experienced at the good-bank, bad-bank model."

American Banker reported Wednesday afternoon that Lockhart is expected to step down after overseeing the GSEs for more than three years.

He is expected to leave the agency relatively soon, as soon as next week and the end of the month is seen as an outside deadline. His successor is unclear, and the administration is said to have asked a number of candidates about their interest, with some turning down the White House.

Ed DeMarco, the Finance Agency's senior deputy director and chief operating officer, is expected to lead it on an interim basis. Candidates for a permanent successor include Konrad Alt, the managing director of Promontory Financial Group, who was once a top official at the Office of the Comptroller of the Currency; Geoff Bacino, a former director at the Federal Housing Finance Board; and Tim McTaggert, a partner in Pepper Hamilton.

The administration has also approached Eugene Ludwig, the former comptroller who now runs Promontory, and Jonathan Fiechter, a former bank regulator now working at the International Monetary Fund.

None of the potential candidates commented for this story.

Lockhart's expected departure would be yet another change in leadership for Fannie and Freddie, which have operated under government conservatorship for nearly a year. Both GSEs have gone through three chief executives in the past year.

But observers played down the potential instability the leadership change could instigate. Given the Treasury's continued investments in Fannie and Freddie, the health of the GSEs is an issue weighed at the highest levels of government, according to Brian Harris, an analyst at Moody's Investors Service.

"They have a tremendous amount of government support, given the preferred stock program and the GSE credit facility," he said."I don't think this materially creates any instability at the institutions."

Jim Vogel, the head of fixed-income research at First Horizon National Corp.'s First Financial Capital Markets Corp., said the resignation could be seen as an opportunity for the government to make a clean break from the politics of the Bush administration, which often antagonized Fannie and Freddie.

"It possibly opens the way for a new government spokesperson to speak authoritatively about the current situation," he said. "That's probably as important to market participants as any substantive changes in oversight."

Lockhart, who is commuting to Washington from his Connecticut home, has for months voiced a desire to leave the agency. But Treasury Secretary Timothy Geithner has repeatedly asked him to delay his resignation until yearend.

A representative from the Treasury did not comment for this story.

A former Navy lieutenant, Lockhart was nominated to lead the Office of Federal Housing Enterprise Oversight by President Bush and won Senate confirmation in June 2006. He almost immediately began stumping for legislation that would toughen oversight of Fannie and Freddie and bring the Federal Home Loan banks under the same regulator as the larger GSEs.
After much debate, Congress passed legislation creating the Finance Agency in July 2008. But Lockhart has said lawmakers waited too long to act. As their capital deteriorated and the housing market cratered, Fannie and Freddie were seized by his agency in September 2008 and their leadership ousted.

Though Lockhart was close to Bush, he has continued to play a role in the Obama administration's effort to stem home foreclosures, including the Making Home Affordable Program.

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