Senate Banking Committee Chair Says Time for Administration to End Conservatorship

Senate Banking Committee Chair Says Time for Administration to End Conservatorship

Last week, Federal Housing Finance Agency (FHFA) Director Mel Watt appeared before the U.S. Senate Banking Committee and finally had to deal with the issue of ending the conservatorship when Committee Chairman Tim Johnson (D-SD) said this:

“Everyone agrees that conservatorship cannot continue forever, so I hope my colleagues will keep working towards a more certain future for the housing market…If Congress cannot agree on a smooth, more certain path forward, I urge you, Director Watt, to engage the Treasury Department in talks to end the conservatorship.” 

It’s a big breakthrough for Investors Unite to hear a Member of Congress tell the head of the FHFA to find a way to end the conservatorship if Congress doesn’t get its act together on housing reform. As noted in a Bloomberg article, this is the first time a sitting lawmaker has called for an end to the conservatorship.

More from Bloomberg:

“The Enterprises remain trapped in conservatorship,” Johnson said. “FHFA continues to perform the dual role of both regulating and running the businesses of the largest entities in the mortgage market. This is not sustainable, and there is no consensus in Congress regarding how to move forward.”

Sen. Johnson is the “outgoing” chair of the committee and he’s retiring from the Senate altogether, so while we were thrilled to hear his comments, we hope that others on the committee join in his sentiment that the Federal Housing Finance Agency can and should look to end the conservatorship while Congress sorts out mid- and long-term policy plans.   

While Congressional action is necessary to change the charters of Fannie Mae and Freddie Mac, experts have pointed to the authority of FHFA to end its conservatorship over Fannie and Freddie, recapitalize the GSEs and let them once again help keep the housing market stable. During the hearing, Director Watt both said that the conservatorship should not be a permanent state and often cited his obligation to bring certainty to the housing market. We couldn’t agree more, and ending the conservatorship is the best way he can fulfill both of these ideas.

Received outside the hearing by reporters, though, Director Watt had this to say about Chairman Johnson’s comments, as reported by the Wall Street Journal:

After the hearing, he told reporters that any effort by federal authorities to end the conservatorship would need to be begun by the Treasury Department. “It’s something that would have to be initiated by Treasury, not by me,” Mr. Watt said. “In the short term I would rule it out, in the long term, I might not rule it out.”

Obviously, calling for an end the conservatorship has risen to the top levels in Congress, and that’s very encouraging for all of us! The state of conservatorship must end to stabilize the housing market, recapitalize the GSEs and make shareholders whole.