Seven contenders to become next FHFA chief

WASHINGTON — If you want to predict the future for the mortgage giants Fannie Mae and Freddie Mac, you need to first start with who President Trump will nominate to serve as the next head of the Federal Housing Finance Agency.

The next director of the FHFA is still a mystery, but whoever succeeds current Director Mel Watt once his term ends in January will have a front-and-center role in efforts to reform the government-sponsored enterprises.

That person’s policy background and philosophy will be crucial, both in terms of how the FHFA implements any congressional reforms, or uses administrative power to make changes in the absence of legislation. Key areas include whether the status quo around the GSEs continues, how they or their conservatorships are wound down, and what housing finance vehicle would emerge in a future scenario without the two companies.

“The FHFA director individually has so much power, and because that individual has so much power, it is important to watch who gets confirmed,” said Ed Mills, a policy analyst at Raymond James. “If you want to know what GSE reform is going to look like, we first need to know who the FHFA director will be."

To get a nominee in place before Watt leaves, the administration would have to act fast as the confirmation process can drag out for months. But the administration could also allow one of Watt's lieutenants to become acting director, or appoint a temporary director under the Federal Vacancies Reform Act, if it wanted to play for more time. Winning Democratic support for any FHFA nominee will be tough, observers said, which could delay the confirmation process.

“I think that it’s difficult to imagine Democrats will move quickly on any nomination, especially if it is someone who is more ideologically bent towards narrowing the footprint of the GSEs,” said Isaac Boltansky, financial policy analyst at Compass Point.

While it is still unclear who the administration is eyeing for the job, here is a list of potential successors mentioned for the role:

Adolfo Marzol

Adolfo Marzol
Marzol, the senior adviser to Department of Housing and Urban Development Secretary Ben Carson, is Mills’ top pick for FHFA director.

“I think he is someone who would be viewed favorably on Capitol Hill and from the housing finance industry,” Mills said.

Before joining HUD, Marzol spent several years at Essent Guaranty and Essent Group, serving as director, executive vice president, executive vice chairman and vice chairman of enterprise risk.

Marzol also held several positions at Fannie Mae from 1996 to 2006, including executive vice president of finance and credit, senior vice president of corporate strategy and competitive analysis and interim chief risk officer.

Mills said Marzol likely would support reducing the GSEs’ influence on the mortgage market, but not immediately releasing them from conservatorship. His approach could differ from policymakers who have backed cutting off the government’s influence in housing finance, such as House Financial Services Committee Chairman Jeb Hensarling, who has also been mentioned as a potential FHFA pick.

"I think an Adolfo or someone who the industry is comfortable with would chart a very different path than a Chairman Hensarling,” Mills said.

Jeb Hensarling

House Financial Services Committee Chairman Jeb Hensarling
Hensarling, a Texas Republican who has served as chair of the House Financial Services Committee since 2013, is not seeking re-election, meaning he could be polishing his resume at the same time Watt’s term ends.

Hensarling has tried for years to jettison the government’s role in the mortgage market.

“To be clear, Fannie and Freddie must be wound down and their charters repealed,” he said in December, opposing plans to recapitalize the companies. “I fear any plan to recap and release may very well constitute deja vu all over again.”

Hensarling has been asked several times whether he wants the FHFA job. At an event in May, he said that while it would be “tempting” to head the agency, he has no interest in the role. Instead, he recommended former acting Director Ed DeMarco for the job. But asked about the FHFA job again on Wednesday, Hensarling said, "That one would be intriguing to me."

“I think Hensarling is more in the running than he himself would suggest,” Boltansky said. Indeed, he said he believes Hensarling is a front-runner for the job.

Mark Calabria

FHFA Director Mark Calabria
Mark Calabria, director of financial regulation studies with the Cato Institute, speaks during a Senate Banking Committee hearing with Richard Smith, chief executive officer of Realogy Corp., left, in Washington, D.C., U.S., on Wednesday, Sept. 14, 2011. The committee discussed new ideas for refinancing and restructuring mortgage loans. Photographer: Andrew Harrer/Bloomberg *** Local Caption *** Richard Smith; Mark Calabria
Currently serving as chief economist to Vice President Mike Pence, Calabria has an extensive background in housing finance and has been a consistent voice in support of overhauling Fannie and Freddie, and giving the private market a role.

In a 2016 op-ed for American Banker, Calabria — then the director of financial regulation studies at the Cato Institute — noted that the FHFA has the ability to put the two mortgage giants into receivership.

“Having the government act as receiver for the two mortgage giants — instead of conservator — would have had many important benefits,” he wrote. “It would have restructured the GSEs without any taxpayer support, while allowing them to continue to support the mortgage market. Just as importantly, receivership would have transformed Fannie and Freddie into ‘clean’ companies, ready to be released back into the private market.”

He was previously a senior aide for the Senate Banking Committee and a deputy assistant secretary for regulatory affairs at HUD.

Michael Bright

Acting Ginnie Mae CEO Michael Bright
Michael Bright, president of the Government National Mortgage Association (Ginnie Mae) nominee for U.S. President Donald Trump, listens during a Senate Banking Committee confirmation hearing in Washington, D.C., U.S., on Tuesday, July 24, 2018. If confirmed, Bright would take over for former Ginnie Mae President Ted Tozer, who stepped down at the beginning of the current White House administration. Photographer: Andrew Harrer/Bloomberg
As President Trump’s nominee to take over as the head of Ginnie Mae, Bright is already going through a confirmation process, meaning that if he were nominated to serve as FHFA director the Senate would have already examined him.

Bright joined Ginnie Mae last year as executive vice president and chief operations officer and quickly took over as acting director.

While working for Sen. Bob Corker, R-Tenn., Bright helped write 2013 GSE reform legislation that Corker introduced with Sen. Mark Warner, D-Va., but that failed to garner enough congressional support. That bill would have wound down Fannie and Freddie and created a new backstop for the mortgage market. Bright also authored a proposal with DeMarco on housing finance reform, suggesting that Ginnie could be transformed into an independent agency to provide a housing finance backstop.

However, in his nomination hearings in the Senate Banking Committee Tuesday, Bright said that some aspects of conservatorship have proved “durable,” and that he no longer believes Ginnie should be separated from HUD.

Craig Phillips

Craig Phillips, counselor to the secretary at the U.S. Treasury
Craig Phillips, counselor to the secretary at the U.S. Treasury, speaks during a presentation at the Securities Industry And Financial Markets Association (SIFMA) annual meting in Washington, D.C., U.S., on Tuesday, Oct. 24, 2017. SIFMA represents the U.S. securities industry including broker-dealers, banks and asset managers with nearly one million employees providing access to the capital markets. Photographer: Andrew Harrer/Bloomberg
Phillips is currently serving as counselor to Treasury Secretary Steven Mnuchin, where he assists on issues relating to domestic finance, housing finance policy and regulatory reform, according to the Treasury Department.

He has worked at a number of Wall Street firms, including Morgan Stanley and BlackRock, in a span of nearly 40 years.

Phillips has a history with the FHFA, although not necessarily a positive one. In 2011, the agency filed a lawsuit that named Phillips as a defendant, claiming that Morgan Stanley had misled Fannie and Freddie about the quality of loans it had sold to them. Phillips was later dropped as a defendant, but the lawsuit still mentioned his role.

Ed DeMarco

Ed DeMarco
Edward " Ed" DeMarco, acting director of the Federal Housing Finance Agency, speaks during an interview in New York, U.S., on Wednesday, March 28, 2012. Fannie Mae and Freddie Mac, the mortgage financiers under government conservancy since 2008, haven't granted principal reductions because it would cost the taxpayer-funded companies almost $100 billion, DeMarco said in a Jan. 20 letter to Congress. Photographer: Scott Eells/Bloomberg *** Local Caption *** Ed DeMarco
As former acting director of FHFA, DeMarco has experience in the position, which is a quality Trump might value.

But some observers note that DeMarco’s previous role as the FHFA’s acting director could pose a problem.

While he had backing from Republicans and many in the industry, he often butted heads with the Obama administration, suggesting that Democrats would not support his nomination. He also worked at the FHFA when the GSEs were put into conservatorship.

“He was a pretty controversial figure — pretty much universally supported by congressional Republicans, but that frustrated Democrats quite a bit,” said Mills.

DeMarco was chief operating officer and deputy director of the Office of Federal Housing Enterprise Oversight, a predecessor to the FHFA.

Phillip Swagel

Phillip Swagel
Phillip L. Swagel, assistant secretary for U.S. economic policy, speaks at the Euromoney Conference in Westminster, London, UK, on Tuesday, Feb. 26, 2008. The conference runs until Thursday. Photographer: Graham Barclay/Bloomberg News
Swagel, a senior fellow at the Milken Institute and professor at the University of Maryland’s School of Public Policy, was an assistant secretary for economic policy at the Treasury from 2006 to 2009.

He also was chief of staff and senior economist at the White House Council of Economic Advisers, and has professional experience at the International Monetary Fund and the Federal Reserve, in addition to several teaching roles.

Swagel has written several reports on housing finance reform, in which he has suggested the private sector should be the primary source of mortgage credit and proposed new mechanisms to support affordable housing, according to the Milken Institute.
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