The director of the federal regulator of mortgage giants Fannie Mae and Freddie Mac is urging Congress to reconsider the conservatorship structure under which the two enterprises operate, MarketWatch.com reported yesterday. “I am signaling my belief that some of the challenges and risks we are managing are escalating and will continue to do so the longer the Enterprises remain in conservatorship,” Federal Housing Finance Agency Director Mel Watt said yesterday. The practice of sweeping all profits from Fannie and Freddie to the government is the most serious risk, Watt said. The enterprises are allowed to retain a “capital buffer” after the sweeps, but that amount is shrinking each year. The capital buffers will dwindle to zero by January 1, 2018, Watt said. That will leave nothing to smooth out quarterly choppiness in profits, like the loss Freddie Mac sustained in the third quarter as interest-rate derivatives went sour. That might mean Fannie or Freddie have to tap Treasury, Watt warned, and undermine investor confidence in the housing finance system.
