White House is making hard job of GSE reform even harder

For the first time in a long time, there have been signs pointing to real reform of the housing finance market.

Treasury Secretary Steven Mnuchin has repeatedly hinted that he’d like to move forward with overhauling Fannie Mae and Freddie Mac.

And acting Federal Housing Finance Agency Director Joseph Otting recently indicated that a plan is in motion, telling staffers in a meeting last month that the White House and Treasury would soon be communicating about the “direction for what the future of housing will be” with the intention of making progress on reforms over the next six to 18 months.

Andrew Harrer/Bloomberg

Yet days later, after a recording of Otting’s remarks had been leaked to the press, the Trump administration threw cold water on that vision.

“The White House expects to announce a framework for the development of a policy for comprehensive housing finance reform shortly,” a spokeswoman for the president said in a statement. “At this time, no decisions have been made on any reform plan.”

Last week, Mark Calabria, who has been tapped to head the FHFA, further raised doubts about how far along any policy might actually be. Asked at his nomination hearing about Otting’s remarks, including a suggestion by Otting that Calabria had “signed off” on a White House plan, Calabria downplayed the comments, referring to them as a “pep talk” for staff designed to “convey a sense of urgency.”

So where exactly does that leave us?

It’s understandable and even expected that an administration wouldn’t be entirely forthcoming while it’s developing a policy for overhauling something as large as the mortgage finance market, given the potential impact to so many facets of the economy.

But that doesn’t explain away the competing narratives of the last few weeks — narratives that actually seem to contradict each other.

“It is the administration of mixed messages,” said Edward Mills, a policy analyst at FBR Capital Markets, noting that this is a strategy this White House has employed before.

He added: “Sometimes it's about sniffing out potential opposition, sometimes it's about keeping opponents off balance, sometimes it's about internal actions within the administration and other times it's just a misunderstanding."

The situation has left many observers scratching their heads. Is the White House planning major administrative reforms to Fannie and Freddie in secret? Have Otting and Mnuchin excluded Calabria from those early efforts? Are there competing factions within the administration battling over what the future of the system might look like? Are the incongruities we’re seeing publicly more a matter of semantics — a sly differentiation, for instance, between something being a “framework” versus a “plan”? Is this a “secret plan to fight inflation” a la "The West Wing"? These questions immediately jump to mind.

Given the sheer enormity of effort needed to reform the GSEs — and the complexities of the debate — more public information is needed, and quickly. Otherwise, speculation and rumors will continue to run rampant, a trend that could hinder efforts at policy changes down the line.

“Both Congress and the American people have a right to know — what is the articulated policy, what objectives are they trying to reach?” said Jesse Van Tol, chief executive of the National Community Reinvestment Coalition. “To the extent even that's not clear, you sort of have to read between the lines.”

Bankshot is American Banker’s column for real-time analysis of today's news.