What is Otting’s plan for GSE reform? It’s complicated

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WASHINGTON — The Federal Housing Finance Agency’s acting director, Joseph Otting, has promised that the White House is set to announce an administrative plan to make changes to Fannie Mae and Freddie Mac. But the mechanics of such a plan as well as the timeline have left mortgage industry insiders scratching their heads.

In a staff meeting last week, Otting told FHFA employees that within the next month, the White House and the Treasury Department would set a direction for the future of housing finance in the U.S that would define the agency’s role in a new system. The comments were first reported by MarketWatch.

“The Treasury and White House viewpoint is that the [FHFA] director and the secretary of Treasury have tremendous authority and that they would act, I think, independent of legislation if they thought it was the right thing to do,” Otting said at the meeting, according to a recording obtained by Politico.

Otting promised significant progress on overhauling the system within six to 18 months — which sent the shares of Fannie and Freddie soaring Thursday to their highest levels in at least a year — but he failed to provide specifics of such an administrative plan, and his comments appeared at odds with those previously made by other administration officials. Treasury Secretary Steven Mnuchin has discussed letting Congress do the heavy lifting on housing finance reform.

Otting also said Mark Calabria, an administration official nominated to become the permanent FHFA director, had “signed off” on the reform plan to be announced by the White House. But Calabria, the chief economist to Vice President Mike Pence, is still awaiting confirmation. In response to Otting’s comments, senior Democratic lawmakers have been eager to see a copy of the administration plan.

Here are key questions about Otting and others’ housing finance reform plans.

Why isn’t the administration waiting for Calabria to be confirmed?

“There’s a clear mission that’s outlined by the Treasury and the White House, what they want to accomplish,” Otting said in a Jan. 10 interview with Politico. “If I can move that down the rails before Mark is confirmed, there’s a lot of things I think we can get done, and then Mark could come in and continue down the path of the mission that’s been laid out.”

Many have compared Otting’s position as acting director of FHFA to Mick Mulvaney’s role as acting director of the Consumer Financial Protection Bureau, a position Mulvaney used to attempt significant changes to the CFPB. But unlike Otting, Mulvaney served about half of his tenure at the consumer bureau with no one having been nominated to run the agency full time. (Kathy Kraninger was confirmed as CFPB director in December.)

In the case of the FHFA, the White House announced its intention to nominate Calabria for the role before it appointed Otting as acting director, suggesting that Otting may have been viewed as just a temporary placeholder.

“Calabria’s nomination, given his experience, seems likely to go ahead,” said Thomas Wade, the director of financial services policy at the American Action Forum. “For an acting FHFA director to announce this plan rather than wait suggests an urgency I can’t pinpoint.”

But Otting and the White House could be tracking the economy and thinking ahead, said Karen Shaw Petrou, managing partner at Federal Financial Analytics.

Otting “knows as does Mark and as does the White House that confirmation will take some time, and they do not have an awful lot of time to take this kind of administrative action given the state of the economy and the potential downturn and the already evidenced strain in the housing market,” she said.



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