In the world of secondary mortgage market reform, we’ve got good news and bad news.
Which would you like to hear first?
Let’s start with the good news. The Senate confirmed Mel Watt, Democratic Representative from North Carolina, as the next Federal Housing Finance Agency (FHFA) Director.
Watt was nominated to replace the current acting Director of the FHFA, Ed DeMarco, over six months ago. His confirmation has been stymied by a long-standing filibuster rule that those on the right side of the aisle were using to indefinitely delay presidential nominations. With the filibuster now totally enervated by Congress, Watt was confirmed Tuesday in a 57 to 41 vote.
We welcome Watt’s confirmation since he has made clear on several occasions that he is in favor of cramdowns. His predecessor, DeMarco, has obstinately squashed every proposal for cramdowns that have come across his desk, despite their proven efficacy in aiding struggling homeowners.
The bad news? DeMarco has seared his brand on the secondary mortgage market in the eleventh hour. DeMarco announced Monday he is raising Fannie Mae and Freddie Mac guarantee fees (G-fees) by 0.1%.
Those who follow the secondary mortgage market know the FHFA has considered raising G-fees in order to wind-up the GSEs and encourage more competition from private mortgage insurers (PMI) for quite some time. The White House supports this method of bringing private capital back on the scene and we think it is a solid method as well.
However, DeMarco has proven time and again to be a lone wolf, shaking off the opinions of experts and the voice of the American taxpayer. Raising G-fees now may have a potentially disastrous effect on the mortgage and real estate markets.
The historically low interest rates of last year have been steadily tickling upward due to the strengthening 10-year T-note, declining unemployment number and fears among lenders of the dreaded Federal Reserve taper. As a result, buyer purchasing power is dangerously low. The fact is, this real estate market still suffers from dismally low end user demand. Any further increase in interest rates will only add salt to the festering injury.
If Mr. Watt has half the good sense we believe he does, he will slow the GSEs’ wind up and make darn sure it doesn’t happen until the markets can handle it.