Reuters Breakingviews delivers agenda-setting financial insight. Its global correspondents react to stories as they develop, delivering sharp and provocative commentary on big financial news as it breaks. Click here to read more international insights.
Fannie Mae and Freddie Mac's watchdog needs a new mandate, not a new boss. Washington is abuzz with names for the regulator's top job. But Edward DeMarco, the Federal Housing Finance Agency's (FHFA) acting director, is doing fine. President Barack Obama would be better off focusing on more pressing matters, like redesigning America's flawed mortgage finance system.
The president has tried to replace DeMarco several times since 2009. Democrats want the regulator to help provide stimulus for the housing market, while DeMarco has focused on the FHFA's designated purpose as the so-called conservator of Fannie and Freddie.
For instance, he has resisted ideas like principal reductions for struggling borrowers. From the standpoint of the financial health of the $188-billion (U.S.) bailout twins, his reluctance is justified. Breakingviews estimated last year that such a program could cost taxpayers as much as $128-billion. Mr. DeMarco has also been taking what limited steps he can toward winding down Fannie and Freddie, like raising guarantee fees so that their loans become more expensive. The rest of Washington has basically sat on its hands for years.
A replacement would have to be confirmed by Congress, which made Mel Watt, a congressman whose name was floated last month, a non-starter – the Democrat received nearly $10,000 in campaign contributions from Fannie prior to its 2008 bailout. Mark Zandi, chief economist at Moody's Analytics, is the latest rumoured candidate. He worked for Republican John McCain's presidential campaign in 2008, but he favours aggressive tactics to avoid foreclosures and retaining significant government involvement in the mortgage market.
Despite the McCain angle, that would irk some Republicans. And the almost inevitable political battle seems a waste of energy with Mr. DeMarco in situ and the housing market recovering. Home prices were up 5.5 per cent in 2012, according to the FHFA, and foreclosure filings are down nearly 60 per cent from their peak three years ago, according to RealtyTrac.
If anything, that makes the time ripe for Mr. Obama to signal that he's ready to focus on meaningful reform of mortgage finance. Phasing out Fannie and Freddie and phasing in a new mortgage market blueprint would reduce investor uncertainty and encourage private capital back into a sector that's currently 90 per cent backstopped by the government.