At the same time that Freddie Mac announced that it returned to profitability in the fourth quarter after previously reporting a loss for the first time in four years, Mel Watt, the director of the Federal Housing Finance Agency, gave a sweeping speech on the state of the GSEs.
Notable among the many topics that Watt discussed was the long-term viability of GSE conservatorship, the GSEs lack of capital, Congress’ rebuke of Watt’s efforts to raise the pay of GSEs’ CEOs, and even the lack of housing finance reform talk on the presidential campaign trail.
Watt’s speech, given Thursday morning at the Bipartisan Policy Center, touched on the FHFA’s current role as conservator of the GSEs, but also identified several risks to the long-term health of the country’s housing finance system because of the unsettled nature of Fannie Mae and Freddie Mac.
One big issue that Watt identified is the GSEs lack of capital.
“The most serious risk and the one that has the most potential for escalating in the future is the Enterprises’ lack of capital,” Watt said, according to his prepared remarks.