By ZACHARY WARMBRODT | 01/27/15 8:00 AM EDT
WATT IN THE SPOTLIGHT — Federal Housing Finance Agency Director Mel Watt this morning will make his first appearance before the House Financial Services Committee since leaving Congress and the panel in late 2013 to become the regulator of government-controlled Fannie Mae and Freddie Mac.

Watt’s former Republican colleagues will be a tough crowd at the hearing. Chairman Jeb Hensarling, in particular, has been critical of decisions Watt has made, arguing he is putting taxpayers at risk with policies aimed at jump-starting the housing market.

Pro’s Jon Prior on what to expect: “A Republican aide said that the hearing Tuesday will give members of the panel a chance to question Watt on whether these moves are appropriate at a time when both companies lack the capital to operate without taxpayer support.”

“Hensarling has said that housing reform is a top priority in the new Congress, but passing any legislation that President Barack Obama might sign remains a long shot. Watt has continually said Fannie and Freddie’s fate is in Congress’ hands, but he could be questioned on what steps he could take in lieu of legislation.” http://politico.pro/1wyyh6t

MEANWHILE, ACROSS THE CAPITOL — The Senate Banking Committee kicks off the first hearing of Alabama Republican Richard Shelby’s second run as the panel’s chairman. The topic: Iran sanctions. Witnesses from Treasury and the State Department will make the case against an Iran sanctions bill that the committee will take up on Thursday.

POLITICO’s Burgess Everett reports that Sen. Chuck Schumer has signed on to an Iran sanctions bill but that its backers are struggling to find support in the Senate. http://politi.co/1Ld1fDE

WHAT DOES SHELBY WANT TO DO NEXT?: ICYMI, Shelby told POLITICO last week he wants to hold hearings on how Dodd-Frank rules affect smaller banks. http://politico.pro/1BbFxYw

CASTRO ON ‘THE DAILY SHOW’: Housing and Urban Development Secretary Julian Castro told Jon Stewart a few times last night that the Federal Housing Administration’s capital is on a strong “trajectory” and that the agency could afford to cut insurance premiums as announced earlier this month even though it had not yet reached levels required by law. A skeptical Stewart responded, “People have been working with you on that word trajectory.”

THIS MORNING ON POLITICO PRO FINANCIAL SERVICES —

REGULATOR URGES CFTC TO REVIEW OIL PRICE DROP: Zachary Warmbrodt: “The CFTC should take into account the recent decline in oil prices as it finishes writing a rule that would cap financial speculation in derivatives tied to energy products and other commodities, a CFTC commissioner is arguing. CFTC Commissioner J. Christopher Giancarlo, who holds a Republican spot at the commission, appears to be flipping an argument that liberal lawmakers have used for years as they pressured the agency to write the so-called position limits rule from the 2010 Dodd-Frank law. Advocates for tougher limits have said that spikes in oil prices were partly a result of big banks making speculative trades in energy derivatives. Giancarlo, a former executive at a derivatives broker, said in prepared remarks for a Commodity Markets Council conference in Miami that there is a ‘complete paucity of real commission generated research or data’ to justify the rule.” http://politico.pro/1D17Hrd

** A message from the American Bankers Association: America is a nation of hometowns, and bankers are a part of them. We help businesses grow and customers reach their financial goals. But at its core, banking remains a people business. America’s hometown bankers, are here to help you realize your dreams. Learn more at http://bit.ly/1CtvkuQ. **

GOOD TUESDAY MORNING. WHY AM I HERE? — Thanks for your patience while Ben battles the blizzard. Ben reports: “Only about 4 inches of powdery snow on the ground in Englewood, NJ just before midnight. But the storm seemed to be gathering a bit of strength and both Morning Money kids already had days off in the bank. So they should be well rested to help their old man dig out.”

WALL STREET LEFT WITH SKELETON CREWS — Reuters’ John McCrank and Richard Leong: “A blizzard bearing down on New York hollowed out Wall Street offices on Monday, leaving most investment banks and fund managers with skeleton staffs as many employees opted to work from home. The storm, which threatens to dump up to 3 feet … of snow on the East Coast and disrupt travel for tens of millions of people, prompted some retail banks to close branches in the region, though major exchanges said they would remain open as usual. … Big investment banks, which serve a broad array of clients globally that were not hit by the storm, emphasized they were open for business.” http://reut.rs/1tgonv7

DRIVING THE DAY - Case-Shiller Home Prices at 9:00 a.m. … FHFA Director Mel Watt testifies at House Financial Services at 10 a.m. … Treasury Undersecretary David Cohen and State Department Deputy Secretary Antony Blinken testify at the Senate Banking Iran sanctions hearing at 10 a.m. … U.S. Trade Representative Michael Froman testifies on the president’s trade agenda at Senate Finance at 10 a.m. … New Home Sales at 10:00 a.m. expected to rise to 450K from 438K … The Fed’s FOMC kicks off two-day closed meeting

VOLCKER VISITS WATERS — Former Federal Reserve Chairman Paul Volcker met with House Financial Services ranking member Maxine Waters in her office Thursday. The California Democrat’s spokesman shares a readout: “Just weeks after Republicans attempted to undermine a seminal component of Wall Street reform known as the ‘Volcker rule,’ ranking member Waters was pleased to have the opportunity to sit down with its namesake, Paul Volcker. In a wide-ranging conversation, the ranking member thanked the former Federal Reserve chair for his years of service and work on a host of issues critical to our economy, while also discussing future priorities and efforts to strengthen our regulators.”

FIRST LOOK: COMMUNITY BANKER SURVEY — Ahead of today’s House hearing on mortgage finance, the Independent Community Bankers of America is releasing a survey of community banks that finds new rules and requirements are the most cited barrier to making more residential mortgage loans. Around 9 percent of banks are considering an exit from the line of lending, according to the survey. http://bit.ly/1D17Qep

FINANCIAL REFORM ADVOCATES TAKE AIM AT SENATE BILL — HuffPo’s Zach Carter: “A new bill would significantly change the way government agencies write rules, weighing regulators down with new costs and opening the door to a swarm of legal challenges from corporate interests. Although the legislation would apply to all independent federal regulatory agencies, bank watchdogs have found it particularly alarming in light of Wall Street’s ongoing success in overruling new financial standards in court.” http://huff.to/1JvtStW

LENDERS PROFIT FROM SUBPRIME AUTO LOANS — NYT’s Michael Corkery and Jessica Silver-Greenberg: “Across the country, there is a booming business in lending to the working poor — those Americans with impaired credit who need cars to get to work. But this market is as much about Wall Street’s perpetual demand for high returns as it is about used cars. An influx of investor money is making more loans possible, but all that money may also be enabling excessive risk-taking that could have repercussions throughout the financial system, analysts and regulators caution.” http://nyti.ms/1zlnRys

ECB URGES BANKS TO INCREASE CAPITAL IN WEAK ECONOMY — WSJ’s David Enrich, Viktoria Dendrinou and Francesco Guerrera: “The European Central Bank’s bank-regulatory arm in recent weeks wrote letters to most of the eurozone’s largest banks, instructing some to increase their capital cushions to levels well above formal regulatory requirements and pushing others to improve their corporate governance, according to banking and regulatory officials. Banking executives say the mounting pressure from the ECB, which last November became responsible for supervising the eurozone’s largest lenders, is likely to translate into a flurry of banks selling new shares, cutting dividends or finding other ways to improve their ability to absorb future losses.” http://on.wsj.com/1BeVhtU

S&P CUTS RUSSIA’S CREDIT RATING TO JUNK — FT’s Jack Farchy: “S&P said the downgrade, the first time in a decade that Russia has been assessed as below investment-grade by one of the major credit rating agencies, was a reflection of its belief that ‘Russia’s financial system is weakening and therefore limiting the Central Bank of Russia’s ability to transmit monetary policy.’ … Moody’s and Fitch have also cut their ratings for Russia in the past month, but both still rate it at one notch above junk. Traders said that since two of the three major agencies still rated Russia at investment-grade, the S&P downgrade should not trigger a wave of automatic selling.” http://on.ft.com/1yoKJpZ

** A message from the American Bankers Association: America is a nation of hometowns, and bankers are a part of them. We help businesses grow and customers reach their financial goals. Online banking, debit cards and mobile payments have made it safer and more convenient, providing access to your money 24/7. But at its core, banking remains a people business. America’s hometown bankers, are here to help you realize your dreams. Learn more at http://bit.ly/1CtvkuQ. **