In his first appearance before Congress as the first acting director of the Federal Housing Finance Agency, Mel Watt, started by giving an update on Fannie Mae, Freddie Mac and the Federal Home Loan Banks. He spoke before the U.S. Senate Committee on Banking, Housing, and Urban Affairs Wednesday morning.

The update is not totally positive, but Watt delivered the remarks with the balanced caution that has come to define his term so far. See the HousingWire magazine exclusive August 2014 profile of Watt for more insight into his personal character.

[Note: More coverage on his remarks today to come on]

Under the Housing and Economic Recovery Act of 2008, Watt reminded the Senators, the FHFA is responsible for overseeing and regulating Fannie, Freddie and the FHLBanks to ensure that the entities operate in a safe manner and serve as a reliable source of liquidity and funding for the housing industry.  

 “While conservatorship of the Enterprises has helped stabilize their financial condition and the mortgage market, significant challenges remain," Watt said in the hearing.

"Serious delinquencies have declined but remain historically high compared to pre-crisis levels, and counterparty exposure remains a concern,” he added.

“While the risks from the Enterprises’ mortgage-related investment portfolios are declining as their volume shrinks, revenues from these portfolios are also shrinking. And both Enterprises continue to work on maintaining the effectiveness and efficiency of their operational and information technology infrastructures,” he continued.

Both government-sponsored enterprises posted positive third-quarter earnings:

  • Fannie Mae reported net income of $3.9 billion for the third quarter of 2014 and comprehensive income of $4 billion.  The GSE reported a positive net worth of $6.4 billion as of September 30, 2014 resulting in a dividend obligation to Treasury of $4 billion, which the company expects to pay in December 2014.
  • Freddie Mac posted a net income of $2.1 billion for the third quarter 2014, marking the twelfth consecutive quarter of positive earnings. This is compared to $1.4 billion in second quarter of 2014. bComprehensive net income came in at $2.8 billion, significantly up from $1.9 billion in the second quarter of 2014.

Watt reiterated the 2014 Strategic Plan for the Conservatorships of Fannie Mae and Freddie Mac, which includes three goals.

  • Maintain, in a safe and sound manner, foreclosure prevention activities and credit availability for new and refinanced mortgages to foster liquid, efficient, competitive and resilient national housing finance markets.
  • Reduce taxpayer risk through increasing the role of private capital in the mortgage market.
  • Build a new single-family securitization infrastructure for use by the Enterprises and adaptable for use by other participants in the secondary market in the future.