The Real Deal New York

FHFA head Mel Watt plans to stay on under Trump

Obama appointee’s term ends in 2019
December 15, 2016 12:00PM

Mel Watt

Mel Watt, the head of the federal agency overseeing Fannie Mae and Freddie Mac, said he plans to stay on in his role even after President-elect Donald Trump assumes office.

Watt is an appointee of President Obama and his term at the helm of the Federal Housing Finance Agency ends in 2019. The mortgage insurers face an uncertain future eight years after their bailout by the federal government.

Although Trump’s team has not disclosed a plan on what to do with Fannie and Freddie, Trump’s appointee for Treasury Secretary Steven Mnuchin has said he wants to return the firms to private ownership. To do that without passing legislation, the Trump administration will likely need Watt’s approval.

Another issue is the shrinking capital buffer, thanks to bailout terms requiring them to channel all profits to the Treasury. Watt has indicated that he would allow them to keep more funds, calling their shrinking capital cushion “the most serious risk and the one that has the most potential for escalating in the future.”

Whether Fannie and Freddie stay in public hands or are turned back into private companies could determine whether the firm’s private investors, who bought shares in the firm at a steep discount, could get a hand on massive dividend payments.

In 2014, Watt said that while the FHFA has the authority to end government control of Fannie and Freddie, “the alternatives would not be desirable alternatives.”

Fannie Mae and Freddie Mac buy mortgages from lenders, turn them into bonds and sell them off to investors. Last year, Fannie Mae backed a $2.7 billion Wells Fargo loan that funded the Blackstone Group’s TRData LogoTINY and Ivanhoe Cambridge’s $5.3 billion acquisition of Stuyvesant Town-Peter Cooper Village. [Bloomberg]Konrad Putzier