[Congressional Record Volume 159, Number 174 (Tuesday, December 10, 2013)]
[Senate]
[Pages S8586-S8587]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




  NOMINATION OF MELVIN L. WATT TO BE DIRECTOR OF THE FEDERAL HOUSING 
                             FINANCE AGENCY

  The PRESIDING OFFICER. The clerk will report the nomination.
  The bill clerk read the nomination of Melvin L. Watt, of North 
Carolina, to be Director of the Federal Housing Finance Agency for a 
term of 5 years.
  The PRESIDING OFFICER. Pursuant to the provisions of S. Res. 15 of 
the 113th Congress, there will now be up to 8 hours of postcloture 
consideration of the nomination, equally divided and controlled in the 
usual form.
  The Senator from Connecticut.


                           Order of Procedure

  Mr. MURPHY. Madam President, I ask unanimous consent that the Senate 
recess from 12:30 p.m. to 2:15 p.m., and that the time during the 
recess count postcloture on the Watt nomination with the time equally 
divided in the usual form.
  The PRESIDING OFFICER. Is there objection?
  Without objection, it is so ordered.
  The Senator from Idaho.
  Mr. CRAPO. Madam President, I rise today to discuss the nomination of 
Representative Watt to lead the Federal Housing Finance Agency, or 
FHFA. Unfortunately, I cannot support this nomination, and I must urge 
my colleagues not to support it either.
  I did not come to this decision lightly, and I regret we are placed 
in a situation where we cannot support a well-liked Member of Congress. 
However, by making a political appointment, the President has ignored 
the importance that the head of the FHFA be independent and viewed as 
nonpolitical. This is not a cabinet position, where the nominee is 
supposed to be an advocate for the President. Instead, this is an 
independent agency with a highly complex task impacting our entire 
economy, and it is for this reason many Senators noted the need to 
avoid politics and to emphasize the technical expertise needed to fill 
this position.
  Regrettably, this did not occur, and we stand here today with the 
majority party apparently willing to confirm a political figure to this 
highly technical position. Worse yet, they appear to be ready to do it 
in a highly political manner that ignores decades of Senate rules and 
precedents.
  Representative Watt has led a long and distinguished career in the 
House of Representatives and in legal practice. He is well liked by his 
colleagues, regardless of whether they see eye to eye with him on the 
issues, and he has a tremendously compelling personal story. My 
opposition to this nomination has nothing to do with Representative 
Watt from a personal perspective. To the contrary, there are many 
positions in government to which Representative Watt could have been 
easily confirmed.
  In demonstration of that point, it is worth noting that most of the 
President's nominees that have come through the Banking Committee have 
been confirmed with strong bipartisan votes, often with unanimous 
consent. In fact, four nominees who appeared at a nomination hearing 
with Representative Watt were all approved by voice vote.
  However, this position is distinctly unique within our government. 
Thus, our evaluation of any nominee requires additional scrutiny. The 
Director of the FHFA is conservator of Fannie Mae and Freddie Mac, 
which have operated under Federal control since they were taken over in 
2008 because they didn't have enough capital to support expected 
losses.
  Since that conservatorship began, we have seen the bill to the 
American taxpayers rise to nearly $200 billion. The Housing and 
Economic Recovery Act, or HERA, established the FHFA and the rules of 
the conservatorship. It specifically grants the FHFA the power to 
operate Fannie and Freddie ``with all the powers of the shareholders, 
the directors, and the officers,'' so long as they remain in 
conservatorship.
  FHFA's conservatorship of Fannie and Freddie triggered those broad 
powers and the Director of the FHFA now stands alone as the regulator, 
the top executive, and the shareholder of Fannie Mae and Freddie Mac 
and their combined $5 trillion of portfolio. Because of this immense 
power vested in the Director of the FHFA, it is a position that 
requires an in-depth knowledge of and experience with numerous aspects 
of the housing markets and mortgage industries.
  The statute explicitly requires that, at a minimum, any nominee:

       . . . have a demonstrated understanding of financial 
     management or oversight, and have a demonstrated 
     understanding of capital markets, including the mortgage 
     securities markets and housing finance.

  Additionally, to be successful, it is logical that any nominee should 
also have knowledge of and experience with investment portfolios, the 
operations of both public and private insurance and guarantees, and the 
management skills necessary to oversee the nearly 12,000 employees 
employed by both entities.
  Since this position has virtually unchecked power to control two 
multitrillion dollar companies, and because the companies control so 
much of our mortgage-backed securities market, the decisions of the 
FHFA Director will have tremendous impact on our housing market and, 
collaterally, on the global market.
  If we are to give anyone this much power, we must know for certain 
that he has the experience to know how to make the right choices and, 
frankly, the political independence to make those choices, even if they 
are unpopular.
  One reason this is so important is the impact on the taxpayer. Even a 
few basis points of losses could mean billions in the context of 
multitrillion dollar companies. That would be on top of the nearly $200 
billion the taxpayers have already shouldered.
  With those unique risks in mind, the FHFA has taken great strides 
during the conservatorship to shore up the business practices of Fannie 
Mae and Freddie Mac. Underwriting standards have been tightened, 
portfolio holdings have been reduced, guarantee fees have been 
increased, and risk is being gradually transferred from the taxpayer to 
the private sector.

  With these changes, the revenues of Fannie and Freddie have 
increased, their risks have decreased, and, for now, they have regained 
a certain amount of profitability. This current profitability creates 
its own set of challenges and questions. But one thing is certain: Any 
return to policies of the past, whether with social goals in mind or 
merely by mistake due to lack of technical experience, could expose the 
taxpayer to immense risk.
  In addition to the risks associated with their current operations, 
the Director will also have a substantial impact on the prospects of 
the success of these reforms. While Congress and the White House will 
determine how to reform and strengthen our housing finance system, we 
need to be able to rely on the director of the FHFA for advice and 
guidance as we proceed. For this to work effectively, the FHFA Director 
will need to be seen as a technical expert who is not viewed as a 
political advocate for the President.
  The Director of the FHFA must have the market experience to 
understand how any proposed changes would or would not work, how they 
would impact access to mortgages while protecting taxpayers from 
losses, and how they would affect our housing market and economy as a 
whole.
  One example: There is a lot of interest in developing markets in a 
manner to ensure there is adequate private capital taking the first 
loss to protect the taxpayer, if there is to be some sort of government 
guarantee in the future. Some proposals call for the development of 
various private-sector risk-sharing mechanisms, including senior 
subordinated deal structures, credit-linked structures, and regulated 
bond guarantors.
  Many are looking at what the FHFA has already begun working toward as 
a test for the viability of capital markets' risk-sharing transactions. 
These risk transfer deals--known within

[[Page S8587]]

Freddie as the STACR deal, and within Fannie as the NMI and C-Deals--
are important examples of how private capital can partake in this 
market at a higher level. They are also critical examples of why the 
FHFA Director must have a deep and sound understanding of the demands 
of capital market investors.
  In constructing and monitoring these deals, we need to know that 
decisions in how to balance the necessity of encouraging private 
markets with the protection of the taxpayers are being made based upon 
effective market analysis, absent the political preferences of one 
individual.
  Another important aspect of the transition will be development of the 
common securitization platform. FHFA has noted that the GSEs' 
infrastructures are ineffective when it comes to adapting to market 
changes, issuing securities that attract private capital, aggregating 
data or lowering barriers to market entry. As such, there must be an 
updating and continued maintenance of the enterprises' securitization 
infrastructure.
  This is an incredibly complex undertaking that will take years to 
develop, but it is an essential component of most reform proposals. 
Because of this, it is incredibly important the Director, on day one, 
has the technical expertise and the commitment to establish this 
potential utility similar to ones used in securities markets.
  All of us are currently witnessing the consequences of political 
people leading technical platform development as we watch the continued 
failures of the rollout for ObamaCare. We cannot afford the same 
mistakes in the context of our $5 trillion mortgage market.
  The management of the current assets of Fannie and Freddie is another 
essential component of the Director's task, for many reasons, both 
currently and in the future. When Congress passed HERA authorizing the 
FHFA Director to appoint the agency conservator of the GSEs, it 
authorized FHFA to put the GSEs in a ``sound and solvent condition,'' 
and to ``preserve and conserve the assets of the properties'' of the 
GSEs.
  Congress very specifically intended that the assets of Fannie and 
Freddie be managed in such a way to maximize payments to the Treasury 
in exchange for bailing out the GSEs in 2008 and to maximize their 
value in whatever system is designed for the future. Acting Director 
DeMarco has done a commendable job fulfilling this task.
  However, some believe that other statutory provisions trump this 
mandate and advocate using the GSEs in manners they believe would 
achieve other policy goals. Representative Watt noted at his 
confirmation that, if confirmed, he would decide whether there is 
sufficient capital to fund various social programs.
  In order to ensure the taxpayers are made whole and to best position 
the secondary market for reform, we cannot afford the FHFA Director to 
make any decisions that do not first prioritize the preservation and 
conservation of taxpayer assets. So long as Fannie Mae and Freddie Mac 
are in conservatorship, profits accumulated by the GSEs should not be 
used to fund social programs.
  Additionally, we cannot return to any of the policies that 
contributed to the housing crisis, such as further pressing the GSEs' 
affordable housing goals. Decisions affecting social housing policy 
should be made through congressional action on housing financing 
reform.
  One final yet incredibly important element of the unique 
qualifications is regulatory interaction. In a new housing finance 
system, the already complex web of regulatory interaction between 
various Federal banking regulators and Federal and State regulators 
becomes further muddled. State insurance regulators and State banking 
supervisors must communicate effectively with Federal counterparts.
  As this system is being built, the FHFA must coordinate effectively 
with prudential banking regulators and the CFPB to make sure we are not 
bogging down our economy with duplicative regulation. To accomplish 
this the Director needs not only to have an understanding that is built 
of highly technical expertise, but this person must be seen by other 
regulators as acting without political intent.
  For all of these reasons, and many more, the conservator must be an 
apolitical financial regulator with the technical expertise who will 
resist political pressure from all sides of the political spectrum.
  Joseph Smith, the last nominee for this position, failed to win 
confirmation by the Senate because of concerns over whether he was 
independent enough. At the time of Representative Watt's nomination, 
the White House was fully aware that these concerns have only been 
heightened since then.
  In the wake of repeated attempts by outside political groups and 
individuals to influence the decisions of the conservator and in view 
of the countless complex decisions--of which I have only mentioned a 
few--numerous Senators repeatedly called for a technocrat rather than a 
political figure. However, rather than acknowledging the unique aspects 
of this job, the White House chose to ignore calls to emphasize 
technical expertise and political independence in their search. As a 
result, their nominee failed to be confirmed by this body just a few 
weeks ago. Yet again the White House failed to accept the advice of the 
Senate.
  Today, because of a historical rewrite of Senate rules, we are now 
facing another vote. Instead, this time the White House and the 
Democrats in the Senate chose to break the rules of this body so that 
they could push through Representative Watt and other nominees in 
partisan votes. I am disappointed with the White House and those in the 
Senate who supported this rewrite of our rules, and at some time we 
will all likely be disappointed that these are the rules of this body 
moving forward. However, I continue to be opposed to this nomination 
and urge my colleagues to vote no today when the vote comes before us.
  I yield the floor.

                          ____________________