During his 21 years in Congress, Mel Watt helped usher in several major changes to the banking industry, from the Gramm-Leach-Bliley Act to the Dodd-Frank Act.
But his toughest and most divisive political battle still lies ahead in the fight over the government-sponsored enterprises — and there's little end in sight.
As head of the Federal Housing Finance Agency, a job he took a little over a year ago, Watt must chart a short-term course for the still-troubled housing market, while he waits for his former colleagues on the Hill to come up with a more permanent solution.
So far, at least, key players on different sides of the debate have expressed measured support for his role as conservator of Fannie Mae and Freddie Mac.
"It's a tough job. He's in the middle between two competing forces — one that wants Fannie and Freddie to do more, and another that wants the GSEs to disappear," said John Taylor, president and chief executive of the National Community Reinvestment Coalition.
But he has also received significant criticism from those who worry his actions are making it more difficult to resolve the future of Fannie and Freddie.
As director of the FHFA, Watt will not dictate what ultimately happens to the GSEs — that's a mandate for Congress that has so far been left unaddressed. But his moves do help shape what will occur.
For those who would like the GSEs to be taken out of the equation entirely, Watt's efforts to ease credit standards and spur new lending are seen as shortsighted.
"He's certainly not focused on shrinking their footprint," said Mark Calabria, director of financial regulation studies at the Cato Institute. "Almost everything he has done makes it more likely that the status quo continues — he's not exactly being an agent for change."
Watt's stance is a departure from that of his predecessor, Edward DeMarco, who spent more than four years as acting director focusing on protecting taxpayers from additional losses and reducing the GSEs' presence in the mortgage market ahead of future legislative action.
While Watt has said he also views those goals as crucial, he's indicated that he plans to balance that with efforts to support the current functioning of the GSEs, and thus keep their dominate position in the housing market.
"FHFA is focused on how we manage the present — the present conservatorships of the enterprises and the present housing finance market under the present statutory mandates," he said at his first public speech in May.
"We have reformulated this goal [to reduce the GSEs] so that it no longer involves specific steps to contract the enterprises' market presence, which could have an adverse impact on liquidity. Instead, the 'reduce' goal focuses on ways to scale back Fannie Mae and Freddie Mac's overall risk exposure. This approach allows us to meet our mandates of upholding safety and soundness and ensuring broad market liquidity."
Earlier this month, he reported that the GSEs completed credit risk transfers last year on mortgages with more than $300 billion in unpaid principal balance, with roughly $270 billion in transfers expected for 2015.
"You can see that there should be multiple opportunities for private sector involvement in the risk transfer space in 2015," he told attendees at the Goldman Sachs Housing Finance Conference.
But the shift in strategy still comes at a potentially difficult time for the agency, after Fannie and Freddie reported sharply lower quarterly earnings last month, compared to a year ago. The bailout agreement for the GSEs includes a provision that shrinks their capital cushions over time, increasing the chances that the enterprises could need another draw from Treasury sometime in the coming years. FHFA's own watchdog recently released a report echoing those fears.
GOP lawmakers and other critics argue that Watt's policies — particularly a plan allowing the GSEs to buy mortgages with downpayments as low as 3% — would put even more risk on the books.
At the same time, those on the other end of the political spectrum would like to see the agency going further to help homeowners who are still struggling and those without access to credit.
Senate Democrats, presumably a natural ally for the former North Carolina congressman, blasted Watt in November for not yet implementing principal reductions for underwater borrowers — a decision he's said he's still weighing.
"You've been in office for nearly a year now, and you haven't helped a single family — not even one — by agreeing to a principal reduction," Sen. Elizabeth Warren, D-Mass., said at the Senate Banking hearing in November. "Why has this not been a priority for you?"
Some in the industry — even those who are otherwise supportive of Watt — have raised similar concerns about timing. The director's term is limited to just five years, and the agency is involved in a number of challenging, long-term projects, like creating a single security for the two GSEs.
"If I was to make any element of complaint, my desire is for him to move faster on more complicated issues, or time could work against you," said David Stevens, president and chief executive of the Mortgage Bankers Association. "Some of these projects are highly technical and complex, and they need to get done while his team is there."
The agency has also spent more than a year deciding whether to adjust guarantee fees, after Watt suspended an earlier plan by DeMarco to raise them. He halted the decision in December 2013, before he was even officially sworn in.
An agency official said the delay is to ensure it can think the issue through.
"As Director Watt has said previously, FHFA moves at a responsible pace that allows for thorough evaluation of these important issues," an agency spokesperson said.
That said, observers noted that the pacing so far aligns with Watt's general approach to leadership — which tends to be careful and thoughtful.
"Anybody who thought that Director Watt was going to go over to FHFA and rework the way things are done without very thorough review and cautious thinking doesn't understand who he is," said Sheila Crowley, president and chief executive of the National Low Income Housing Coalition. "Many people are disappointed he didn't take more decisive action quicker, but I think he's a person to be utterly fair and completely scrupulous in his evaluation of how it is that he can operate within the law."
Supporters have lauded his efforts to seek input on various policy decisions and his willingness to meet with a wide range of groups, so that he can weigh competing viewpoints. He's also held a number of town halls across the country to talk to the public about the Obama administration's refinancing programs.
"I want to emphasize that getting and evaluating input from stakeholders is a crucial part of our policymaking process," Watt told the House Financial Services Committee in January.
His deliberate approach has helped Watt chart a course down the middle of the policy road. That's not to say that everybody agrees with his decisions, but that he's managed to keep some of the people happy some of the time — a feat given that mortgage finance has become such a political lightning rod.
"He hasn't played into the emotions of any specific stakeholder group, and instead he's really chosen to focus his time on quality measures that would be truly impactful and beneficial to the long-term health of the financial system," Stevens said.
In particular, the former Democratic lawmaker has proven more industry friendly than some might have predicted.
"Mel has surprised even some of his harshest critics in his performance on the job," Stevens added. "There was an expectation by some harsh observers that he might come into role and use it as a pulpit for purely social causes."
Steps like clarifying rep and warranty standards, expanding risk-sharing efforts and halting a plan to lower loan limits have been a boost to industry. Indeed, the agency has accelerated its pace for issuing proposals and making key decisions over the second half of the year, as Watt has found his footing.
"Because he was an Obama administration pick after numerous affordable housing groups pushed the White House to act, people assumed he was going to be of that same mindset," said Brandon Barford, a partner at Beacon Policy Advisors. "But one of most important companies near his district was Bank of America, among other financial firms. He's had decades of experience interacting with financial institutions in Charlotte and North Carolina more broadly."
Meanwhile, Watt's also won praise from housing groups for his decision to capitalize two affordable housing trust funds with contributions from the GSEs, a move his Republican former colleagues on the House Financial Services Committee have decried.
Looking ahead, the only thing that's certain is that Watt will continue to come under fire, regardless of his decisions on g-fees, principal reductions or other key issues facing the agency. Those policy choices are ultimately what will determine whether the moderate path can help stabilize a market still in recovery and a housing system still in limbo.
"We have a general understanding of his direction, but by no means full comprehension of what his full time as director will produce," said Isaac Boltansky, a policy analyst at Compass Point Research & Trading. "He mostly struck a good balance in his first year, but we still don't know what kind of director he's going to be, because a good chunk of that first year was focused on gathering data and input."