[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.
____________________