The director of the newly formed Office of Federal Housing Enterprise Oversight has signaled her intent to fashion a durable regulatory harness for Fannie and Freddie by revealing an ambitious plan to staff her agency from the private sector and writing new specialized examination procedures.

Expressing her plan to seek out lawyers with regulatory experience, as well as insiders from the investment banking industry, Aida Alvarez outlined her ideas for supervising the two secondary mortgage market giants during an exclusive interview with The Mortgage Marketplace Aug.17.

"I don't think this agency is a five-year experiment," she said. "This is an ongoing regulatory process that will be here long after I'm gone--you just don't want to entrust that to a consultant. We're better off doing the hard work right now so we can be effective."

The Government-Sponsored Enterprises Act, which became law in October, authorizes Alvarez to conduct examinations on the GSEs' safety and soundness, such as capital levels and capital distribution. The funding--$3 million to fuel the agency's startup--also comes from Fannie and Freddie.

But staffing the examination team wasn't the only thing on her mind. Alvarez also expressed interest in moving the agency to the building that houses the Office of Thrift Supervision. She said there was hope it could acquire an entire floor to facilitate growth. OTS officials said they had spoken with her about the move, but nothing had been finalized.

The last two months have been filled with planning, interviewing and processing the required paperwork, she said, in an attempt to bring people into the fold. That work and her initial plans for the agency have taken up most of her early days in office.

"We've discussed our plans through fiscal year '94," she said. "Based on those discussions, we think we could use 60 people. I'm especially focused on building the policy research and capital standards groups because those are the people who are going to build the [examination] model. I'm also in the market for good lawyers with regulatory experience and people who want to think through examinations and the provisions process."

Created when Congress passed the Government-sponsored Enterprise Act last October, the Department of Housing and Urban Development agency--which reports directly to Congress, not Hud--will keep a constant watch on the safety and roundness of the secondary mortgage market giants. The Clinton administration chose Alvarez, a former investment banker with First Boston Corp. and Emmy-nominated journalist with Fox Television, to run the organization.

Alvarez, who consulted with other regulatory agencies and based her decisions on these meetings, cited the significant differences between regulating two large, powerful enterprises against banks, thrifts and savings and loans as a reason for the agency wanting to develop its own exams. But she also said that she wanted to create a lasting organization, not one that may fold or lose power when the current administration departs Washington.

Working with a staff of six, she may have discovered that overseeing the two secondary mortgage market behemoths might not seem as difficult as working through the miles of bureaucratic red tape necessary to start such an agency. In fact, pulling the staff together hasn't been as elementary as that legislation would make it seem.

Simply put, the GSE Act allows Alvarez to appoint and pay the people she chooses without regard to the U.S. Code relating to classification and general pay schedule rates. It doesn't sound difficult, but like many things in government, it wasn't that easy.

"First, I needed to get an independent hiring authority," she said. "Even though the [GSE] legislation says I have [the authority to hire outside of the normal processes], I still needed a letter from [the Office of Personnel Management] that said because we were creating a new agency, we needed a crash program to staff the agency. That took some time."

OPM has granted approval and the agency has hired a consultant to study the comparable pay standards of other regulatory agencies, Alvarez said. The Hay Group Inc., a Philadelphia-based consulting firm, is conducting the study she said would be ready soon.

But while considerable time has been dedicated to creating the agency, Alvarez said the process hasn't taken her mind from the duties that will confront her.

She declined to speak about specific issues of import to the secondary market, citing a need for more "homework" before voicing her opinions. But she did reveal that she had been in contact with the leaders of Fannie Mae and Freddie Mac and spoke about some of the GSE Act rules governing them.

"I've met with each of them," Alvarez said of Fannie Mae Chairman James A. Johnson and Freddie Mac Chairman Leland C. Brendsel. "But I thought it was appropriate to meet them one-on-one so they could get a sense of my thinking, philosophies and accessibility, as well as give them an opportunity to raise any issues or concerns they have--I felt the meetings were really constructive."

Something Johnson and Brendsel might be interested in, however, is how closely OFHEO will watch their everyday operations. The GSE Act is broad-based in regulating different functions of both--including voiding excessive compensation to GSE officers--and each is likely to be curious about just how much power the agency will wield.

Alvarez, however, is taking a low-key approach.

"Really, my job is not to meddle in management or to concern the agency with their profit or business decisions," she said. "We have some fairly explicit guidelines in the legislation for what we're supposed to be looking at. There is room for discretion in certain areas, but I don't view that as the job of this agency. Our job is to protect the taxpayer by ensuring adequate capitalization in the event of dire circumstance."

Subscribe Now

Access to authoritative analysis and perspective and our data-driven report series.

14-Day Free Trial

No credit card required. Complete access to articles, breaking news and industry data.