Department of Housing and Urban Development, Director (CEO) of the Federal Housing Finance Agency and Chairman of the Federal Housing Finance Oversight Board

Department/Agency: Department of Housing and Urban Development

Position:

Director (CEO) of the Federal Housing Finance Agency and Chairman of the Federal Housing Finance Oversight Board

Executive Schedule: Executive Level II - Presidential Appointment with Senate Confirmation

Major Responsibilities:

Oversee Fannie Mae, Freddie Mac, and the 12 Federal Home Loan Banks
Ensure that each regulated entity maintains adequate capital and internal controls
Foster liquid, efficient, competitive and resilient national housing finance markets
Require that each regulated entity carry out its statutory mission only through activities authorized under and consistent with law and regulation, and consistent with the public interest
Manage the conservatorship of Fannie Mae and Freddie Mac
Serve on the Financial Stability Oversight Board

Key Competencies and Preferred Qualifications:

Sophisticated understanding of financial markets, accounting, and investment banking
Grasp of the financial regulatory role
Risk management experience
Familiarity with Congress, public policy and the news media

Insight:

In response to dire conditions in the housing markets, the Bush administration and Congress created the Federal Housing Finance Agency (FHFA) under the provisions of the Housing and Economic Recovery Act (HERA), which President George W. Bush signed into law on July 30, 2008. HERA abolished the Office of Federal Housing Enterprise Oversight (OFHEO) and the Federal Housing Finance Board (FHFB). These agencies, together with the Department of Housing and Urban Development Government-Sponsored Enterprise Mission Teams, were combined to establish FHFA. FHFA Director James B. Lockhart III announced the formal integration of these three entities into the new, independent agency on Oct. 27, 2008. HERA gave FHFA substantially greater powers than OFHEO had to oversee the key components of the country's secondary mortgage market: Fannie Mae, Freddie Mac and the 12 Federal Home Loan Banks.

The FHFA's predecessor agency, OFHEO, had been established in 1992 by the Federal Housing Enterprises Financial Safety and Soundness Act in an earlier overhaul of the regulatory structure for oversight of the government-sponsored enterprises of Fannie Mae and Freddie Mac. The 1992 law sought both to ensure their financial safety and encourage Fannie Mae and Freddie Mac to do more to promote affordable housing, their prime mission. OFHEO was to enforce their capital standards, while the Department of Housing and Urban Development carried out the housing mission oversight.

HERA also abolished the Federal Housing Finance Board (FHFB), the former regulator for the 12 Federal Home Loan Banks created in 1932 during the Depression to lend funds to savings institutions that, in turn, financed loans for home mortgages. The FHFB ensured that the FHLBanks, which are privately capitalized government-sponsored enterprises (GSEs), operate in a safe and sound manner and remain adequately capitalized.

As evidence began to emerge in 2003 that Fannie Mae and Freddie Mac were not following standard accounting practices and may have overstated earnings, Congress re-examined the mortgage system's regulatory oversight structure. OFHEO's then-Director Armando Falcon, Jr., told lawmakers in 2003 that the agency's "long-term success was jeopardized by inadequate resources, a constraining funding mechanism, and a lack of powers equal to those of other regulators." He recommended legislative changes based on these principles. The new regulator should:

1) Remain independent;
2) Be permanently funded outside the appropriations process;
3) Possess the same regulatory powers as the other financial regulators such as the Comptroller of the Currency, and
4) Have full discretion in setting capital standards.

Falcon's successor, Lockhart, repeatedly advanced the same arguments to Congress, emphasizing a need for "much stronger bank-like authorities, including expanded authority to set capitalization requirements and establish prudential safety and soundness standards."

Fannie Mae's and Freddie Mac's situation rapidly deteriorated as the problems that started with the illiquidity of subprime mortgages rippled through the entire market in 2007. Eventually Fannie Mae and Freddie Mac - the housing loan guarantors - themselves experienced their own severe difficulties in the credit market. By September 2008, "each company reported to the FHFA and Treasury that it was unable to access capital markets to boost its capital position without Treasury financing...." Lockhart said. "In the absence of access to new capital, the only alternative left to the firms was to cease business and shed assets in a weak market. This would have been disastrous for the mortgage markets." That led FHFA to place Fannie Mae and Freddie Mac into conservatorship in early September. Lockhart said that the decision was not made lightly and the intent is that the "conservatorship will give the Enterprises time to build on progress already made, to address more recently developing concerns, and ultimately restore balances between safety and soundness and affordable housing market stability and liquidity." As Lockhart noted in his response to a questionnaire from the Council from Excellence in Government, placing Fannie Mae and Freddie Mac into conservatorship was something he hadn't envisioned having to do when he took on the OFHEO job in 2006.

The director also wears a second hat as chairman of the Federal Housing Finance Oversight Board. Other members of the Oversight Board include the Secretary of the Treasury, the Secretary of Housing and Urban Development, and the Chairman of the Securities and Exchange Commission. In response to CEG's survey, Lockhart identified these as the three biggest challenges facing the FHFA director in the next administration:

Helping restore stability to the mortgage markets and housing finance system
Overseeing the safety and soundness of the $6.8 trillion housing-related government sponsored enterprises - Fannie Mae and Freddie Mac and the 12 Federal Home Loan Banks, in particular serving as conservator of Fannie Mae and Freddie Mac
Moving forward with the newly authorized regulatory regime contained in HERA

To meet these challenges, Lockhart urged continued attention to "manag[ing] the integration of the former OFHEO and FHFB, as well as a portion of HUD, into the new FHFA." He emphasized that particular attention be paid to ensuring "that the new agency is appropriately staffed to fill recently expanded authorities." In addition to this internal challenge, he noted as a top external priority managing "the conservatorship of Fannie Mae and Freddie Mac to ensure they fulfill their mission of providing stability, liquidity, and affordability to the mortgage market." With the major upheaval that has occurred in the mortgage sector and the potential that parties will be urging Fannie Mae and Freddie Mac to use their leverage to expand lending, Lockhart also counseled that there will be an increased need to "deal with the housing crisis and the (government-sponsored enterprises') many competing stakeholders/relevant parties: the Administration, Congress, media, and multiple interest groups." Finally, Lockhart concluded his comments to CEG by observing, "It is going to be one of the toughest jobs in Washington even though there is a strong team at FHFA." He added this advice: "The Director should try to be non-partisan."

Key Relationships – Within the Department or Agency:

Senior Deputy Director, Chief Operating Officer and Deputy Director for Housing Mission and Goals
Deputy Director, Division of Federal Home Loan Bank Regulation
Deputy Director, Division of Enterprise Regulation
Director, Office of Management, Federal Housing Finance Board

Key Relationships – Within the Government:

The White House
Secretary of the Treasury
Secretary, Housing and Urban Development,
Chairman, Securities and Exchange Commission
Federal Reserve Board and other bank regulatory agencies (Federal Deposit Insurance Corporation, Office of the Comptroller of the Currency, Office of Thrift Supervision)
Council of Economic Advisers, National Economic Council

Key Relationships – Outside the Government:

American Bankers Association
Mortgage Bankers Association of America
National Association of Homebuilders
National Association of Realtors

Nomination Referred to:

Senate Committee on Banking, Housing, and Urban Affairs

Current Position Profile:

1. Edward DeMarco (Acting). Former Chief Operating Officer and Senior Deputy Director for Housing Mission and Goals for FHFA. Chief Operating Officer and Deputy Director of the Office of Federal Housing Enterprise Oversight (OFHEO). Assistant Deputy Commissioner for Policy, Social Security Administration.

Recent Position Profiles:

2. James B. Lockhart III, MBA (2006-2009). Former deputy commissioner and chief operating officer of the Social Security Administration. Former executive director of the Pension Benefit Guaranty Corporation. Cofounder and managing director of NetRisk, a risk management software and consulting firm for financial institutions. Former senior executive of National Reinsurance, Smith Barney and Alexander & Alexander. Served as a Navy lieutenant aboard a nuclear submarine.

3. Armando Falcon, Jr., J.D. (1999-2005). Former general counsel to chairman of House Banking and Financial Services Committee.