If Rep. Scott Garrett has his way next year, covered bonds will become a viable way to provide an array of credit, the conservatorship of the GSEs will be unraveled and the new consumer protection bureau will be repealed.
But the New Jersey Republican, the top GOP lawmaker on the House Financial Services capital markets subcommittee, understands it would be difficult to carry out that agenda even if his party wins control of the House after the midterm elections.
"This administration does not want to work with us," he said in a recent sit-down interview. "So I don't see this being like Bill Clinton as far as triangulation or something like that going into 2012. These are not sexy issues, but on the ones that are the big ones, I tell people back home it's going to turn on whether the American public over the next 18 months, whether they stick with us, so we can push the president on some of these issues and then maybe we can be successful."
Garrett, who has been a member of the committee since coming to Congress in 2003, was elevated to serve as the top Republican on the capital markets subcommittee, which oversees the GSEs — Fannie Mae and Freddie Mac — at the beginning of 2009 by the full panel's ranking member, Rep. Spencer Bachus, R-Ala.
Garrett said he expects Bachus to chair the Financial Services Committee if Republicans take the House. Garrett said he would like to be able to guide the panel's housing policy, which he puts at the top of his agenda.
"I don't know what role I'm going to have," he said. "I'll hopefully be in a position to look at this because of the work I've done on this."
A Republican-led House would be more aggressive in tackling the matter, Garrett said.
"One of the changes that we will immediately begin to address, which was a core cause of the financial problem, and that was GSEs and the need for GSE reform," he said. "For two years the president, administration and the Congress have tried to punt on this issue and kick the proverbial can down the road until after elections or something. But we have always said this issue is core and it should have been addressed at the very forefront. So that would be a significant change."
If the Republicans are in charge, he said, the biggest shift in direction would be a hard-line push to stop government backstopping of the mortgage market and clear the decks for private enterprise.
"The one thing you want to do is to end the bailouts. It is a fundamental principle here, and not relying on the federal government as a backstop for an entity like the GSEs. Just because you get rid of Fannie and Freddie, if you create something new that has the exact same framework, it doesn't solve the problem," he said.
Garrett is one of 21 Republicans, including Bachus, to sponsor a bill introduced in March by Rep. Jeb Hensarling, R-Texas, that is expected to be the GOP's starting point if the party wins control of the House. The bill would phase out the GSEs over five years by gradually reducing their portfolios and increasing their capital.
When asked what role the government should play in the housing market, Garrett said it should have none. "At this point the government's role is to try to help facilitate the creation of a private secondary market," he said.
He said he agreed with the Hensarling bill's basic approach.
"What that does initially is to try to wind [the GSEs] down," Garrett said. "So that reduces the portfolio size, reduces the conforming loan limit, ends the federal government nexus or guarantee. So those are some principles that I think some of our folks have laid out, and I'm supportive of moving the GSEs on budget."
Garrett said that Democrats who have been in charge since Fannie and Freddie were taken over in 2008 have dragged their heels and that Republicans will take action.
"There's no discussion," he said. "We are just anxiously waiting for [the administration] to do what they said they would do a long time ago. … I believe this needs to be done now, sooner rather than later. Sooner would have been this year."
Garrett is also pushing another potential fix for the housing market: establishing a legal framework for a covered bond market in the U.S. Covered bonds are touted as an alternative to securitization to provide additional mortgage and other types of credit. Unlike securitizations, in which mortgages are packaged into securities and sold into the secondary market, covered bonds remain on an institution's balance sheet and could require the collateral behind the bonds to be refreshed with new loans if the original assets stop performing.
Garrett has a dry if slightly quirky sense of humor. He is easily approachable but not a schmoozer, appears to enjoy debating financial services policy issues and will occasionally turn questions around on interviewers to try to gauge their impressions and observations.
Garrett grew up on Shale Hills Farm, a Christmas tree grower in Sussex County, N.J., and still lives on the farm. He served in the New Jersey General Assembly from 1990 through 2002, rising to chairman of the Banking and Insurance Committee.
Garrett came to Congress in 2003 after twice challenging his predecessor in the Republican primary, former Rep. Marge Roukema, a moderate Republican who was skipped over to serve as the House Financial Services Committee chairman.
Besides Financial Services, Garrett serves on the Budget Committee, where he is an ardent proponent of tax-reduction measures. Well known for being a conservative Republican admired by some in the Tea Party movement, Garrett is passionate about the Constitution Caucus, a bipartisan group that he founded in 2005 and chairs. The caucus is dedicated to defending the founding fathers' intention of federalism by opposing legislation that oversteps the boundaries of the Constitution.
Covered bonds have also become a pet issue for Garrett, who fought to include his legislation in the Dodd-Frank regulatory reform act, even persuading House Financial Services Committee Chairman Barney Frank to adopt it. But the measure was stopped by Senate conferees over concerns that were raised primarily by the Federal Deposit Insurance Corp. and the Treasury Department.
Garrett said covered bonds should be finished first and fast and kept out of the GSE debate.
"This is far larger than the whole GSE issue, because GSEs are tied to just home mortgages and this goes to asset classes far beyond just residential properties," he said. "Credit cards are for it and the auto lenders, so this goes to whole other areas outside that limited lending market, so it would be a mistake to say, 'Well this has to be tied to it because it has a broader credit funding issue.' "
Having just testified before the Senate Banking Committee in September on the topic, Garrett jokes that he got his "10 minutes of fame," while also noting that not many lawmakers attended.
"I appreciate that so many senators turned out for me. Two's company, three's a crowd, so there was a crowd there of senators," he said.
Senate Banking Committee Chairman Chris Dodd chaired the hearing where he was joined in asking questions by Sens. Jack Reed, D-R.I., and Bob Corker, R-Tenn. Corker expressed interest in the issue but at the end said there would need to be a way to resolve differences between the FDIC and "everybody else."
"It was good," Garrett said. "It's just a matter of how we roll it all out, so let's sort of get the votes together to get it done."
Garrett said working with the Federal Deposit Insurance Corp. to foster its full support has been challenging. (The agency is concerned that the Deposit Insurance Fund could be compromised if a failed bond issuer has overcollateralized the bond pool.)
"We've been working with them," he said. "I'm hoping it's not a case that they'll never come on board; I don't think that's the case. I think that eventually they could see that there will be a significant benefit to this marketplace and that we can work out our differences."
Like most House Republicans, Garrett hotly opposed Dodd-Frank. He said he would like to roll back the creation of the Consumer Financial Protection Bureau (CFPB).
"Of course the CFPB issue needs to be clearly overhauled," he said. "Overhauled I guess is a polite term of saying repealed."
Garrett said his main objection to its handling so far is that Elizabeth Warren was installed at the Treasury to run it in the interim without going through the formal Senate confirmation process.
Garrett also still has issues with how Dodd-Frank handles systemic risk. Finding "some one person or entity to be, as one expert said, Zeus on Mount Olympus, being able to predict the next crisis is near impossible to do and we agree … that needs to be addressed."
Garrett said the regulators still have too much power to choose winners and losers, and that he would like to repeal added resolution powers for the FDIC and pursue the bankruptcy model Republicans offered. There's no way to work within the present structure, he said.
"Resolution authority is the one that basically perpetuates the bailout mentality," he said. "That's in the statute."
Garrett said he would have preferred that each reform issue be addressed independently, and that he'd like to revisit issues in Dodd-Frank that way and make changes where Republicans see fit.
"Now we are stuck with the comprehensive bill, so your question is how do you do it?" he said. "We are probably going to go back — I would think — to a piecemeal approach and let's take the various parts of it and let's make sure we can fix, overhaul or undo those various aspects of it."
Re-evaluating Dodd-Frank will be a high priority next year, Garrett said. "There is a wealth of depth of opportunities to examine what was just done … and address the concerns of trying to right the economy with better financial services regulation."
He said he's confident Republicans will win the House. "It is a good time to be a Republican. I feel very good about the election."
A handful of notable Republicans are angling to leave Financial Services for seats on the Ways and Means Committee.
When asked what committee he might want to switch to, Garrett deadpanned. "Science and Technology," he said. "I do live on a Christmas tree farm and I used to raise pigs."
Actually, he said that he would also like to join the Oversight and Government Reform Committee but that he's happy to be a leader on the Financial Services panel.
"There are lot of those who have a keen interest in trying to get on the committee," he said.
"You will see it will be a different configuration of people" next year, he said. "But I'll still be there. I have no place to go, except unless I get that Science and Technology Committee."