Woefully unqualified - Mel Watt
While the Senate has been occupying itself with passing terrible immigration legislation, the United States Senate can walk and chew bubble gum at the same time. Under the radar, this Thursday the Senate Banking Committee is going to hold a hearing the nomination of Congressman Mel Watt to be the Director of the Federal Housing Financing Authority (FHFA).
FHFA flies largely under the radar, but has enormous impact.
The Director operates two companies, which combined control over $5 trillion in mortgages with all of the powers of the shareholders, the directors, and the officers of the companies. Additionally, once confirmed the Director has nearly complete autonomy to make decisions. The Congress has no control over the FHFA’s budget.
As conservator, the Director “succeeds to all rights titles, powers and privileges of the regulated entity, and of any stockholder, officer, or director” of the entity and has the following additional duties:
- Take over the assets of the entity
- Operate the entity with all the powers of the shareholders, the directors, and the officers of the regulated entity
- Conduct all business of the entity
- Collect all obligations and money due the entity
- Perform all functions of the entity, in the name of the entity, which are consistent with the appointment as conservator or receiver
- Preserve and conserve the assets and property of the regulated entity
- Provide by contract for assistance in fulfilling any function, activity, action, or duty of the Agency as conservator or receiver
- Take any actions necessary to put the entity in a sound and solvent condition
Clearly the power here is enormous - some think the Director's influence in the market is second only to the Director of the Federal Reserve.
Congressman Watt though seems an odd choice for this position. He seems to neither the expertise, nor really the understanding of the housing inductry neccessary for the position. He once commented:
“For all of the last term of Congress, I sat in the Financial Services Committee, and a lot of these arguments that I am hearing today are the same arguments that I heard about derivatives. Well, I didn't know a [expletive deleted] thing about derivatives. I am still not sure I do.” – Rep. Mel Watt (December 2011)
If his expressed ignorance wasn't enough, Congressman Watt seems to want to use the FHFA as a social justice tool:
“Private enterprises really have not done well in achieving things other than making money. Most of them don't really give much of a damn about poor people and whether they have housing or not. And it seems to me that an overemphasis in that direction can only make matters worse.” (Rep. Watt--House Financial Services Hearing 09/10/2003)
To that end, on December 11th 2012, Congressman Watt signed onto a letter demanding principal forgiveness for underwater mortgages as a benefit to all taxpayers. In arguing for principal forgiveness, Watt referenced a July 2012 FHFA study on principal forgiveness that estimated net savings of up to $1 billion to U.S. taxpayers. However:
- FHFA’s analysis, the HAMP Principle Reduction Alternative “would not make a meaningful improvement in reducing foreclosures in a cost effective way for taxpayers.”
- Among other things, FHFA concluded that only 3,000 to 19,000 strategic defaulters (of the 400,000+ that are eligible and MUST participate for a net benefit) would result in a net loss to taxpayers, even using the most favorable model-based assumptions.
- The study says that this program creates incentives for market participants to encourage, or even assist, underwater borrowers in taking steps to attain principal forgiveness. Saying, “This is not mere speculation – we have already witnessed an array of commentators, even academics, advocating that people strategically default on their mortgages.”
The report also says:
- FHFA and the Enterprises are greatly concerned with the real possibility of such outcomes.
- HAMP showed that mortgage delinquency increased once the program was in place.
- Fannie Mae has been measuring strategic default behavior and has found a meaningful number of borrowers each month default on their mortgages without defaulting on any other consumer credits
It's doubtful that Congressman Watt considered any of these concerns, but it's also unclear to what degree Senators will mount a filibuster to ensure that Watt does not make it out of the Senate. There is no reason why the Senate Republican Conference should not hold together the votes to reject this dangerous and unqualified candidate. If Senate Republicans cannot keep the Democrats from getting to 60 on this vote, they should do everyone a favor and go home for the next eighteen months.