Since being seized by the government during the financial crisis, Fannie Mae and Freddie Mac haven't been businesses so much as government-owned mortgage utilities. That status was supposed to be temporary, but three years later, lawmakers have shown little appetite for changing it.
Now Ed DeMarco, head of the government-sponsored enterprises' primary regulator, is increasingly agitating for Congress to get a move on. Conservatorship is creating "real risks" for Fannie and Freddie's ability to function as businesses in the future, DeMarco, acting director of the Federal Housing Finance Agency, told industry members in a recent speech.
The longer Fannie and Freddie remain in limbo, the more they risk their ability to function as stand-alone businesses and to fulfill their foundational role in the U.S. housing mortgage market.
The resulting uncertainty affects that entire market. The two mortgage giants, along with the Federal Housing Administration, guarantee about 90% of new mortgages in the United States.
DeMarco tells National Mortgage News government conservatorship has made it more difficult for Fannie and Freddie to recruit and retain staff with institutional expertise in the housing market, which could eventually degrade the companies' underwriting standards.
But DeMarco also has to be careful with those warnings. As the GSEs' primary regulator, his task is complicated by a desire to avoid further spooking Fannie and Freddie's employees or undercutting the perception of the GSEs within the industry. He said in an interview that he is "trying to responsibly inform lawmakers and the public that this is not an easy or normal situation in which the companies are operating, and we are appropriately responding to this challenge."
Conservatorship "attenuates the normal processes and functions of making determinations about investing in business processes and investing in human capital," he says. "I have a responsibility to simply report that challenge."
DeMarco has made his message clear in speeches and testimony over the past year: While Congress drags its heels on making a decision about the future of the mortgage market, the uncertain status of the GSEs becomes increasingly dangerous.
That uncertainty has complicated even routine tasks, like recruiting qualified employees or making decisions about updating systems. Some prospective employees have declined job offers at the GSEs, citing uncertainty about the companies' future, he said.
On the whole, DeMarco says he is "rather pleased with the success we have had at retaining the staff at the two companies, and attracting new staff. But it hasn't been easy."
Beyond personnel, "we have tried to identify our risk areas, whether in terms of business operations or human capital, and focus our attention on managing those risks," DeMarco says. "Three years in, I am pleased overall with the results we have to show and the fact that we haven't had major blowups or difficulties."
