Since July 30, James B. Lockhart III has been the director and chairman of the oversight board of the Federal Housing Finance Agency (FHFA)--the new regulator of Fannie Mae and Freddie Mac, as well as the 12 Federal Home Loan Banks. * In September, FHFA put both Fannie and Freddie into conservatorship at the same time that the federal government took a 79.9 percent share ownership of each. Also at this time, the Treasury Department agreed in a preferred stock facility to provide up to $100 billion to each of the government-sponsored enterprises (GSEs) as capital to guarantee that each would continue to have positive net worth, even in the face of huge write-offs. * FHFA, which officially launched Oct. 27, has the mission of ensuring the capital adequacy and safety and soundness of the two GSEs as well as the Federal Home Loan Banks. A new Web site was also launched at www.fhfa.gov. * The new FHFA combines the Office of Federal Housing Enterprise Oversight (OFHEO), which formerly regulated the safety and soundness of Fannie Mae and Freddie Mac; the Federal Housing Finance Board, which regulated the 12 Federal Home Loan Banks; and the Department of Housing and Urban Development's (HUD's) GSE mission-oversight team. * Like Fannie and Freddie before the government takeover, the FHLBanks are privately capitalized government-sponsored enterprises. The FHLBanks finance loans for home mortgages and other community leading activities. * From May 2006 to Oct. 27, Lockhart headed OFHEO, where he called for new legislation to provide stronger oversight of the GSEs. From 2002 to 2006, he served as the deputy commissioner and chief operating officer of the Social Security Administration, and was executive director of the Pension Benefit Guaranty Corporation from 1989 to 1992. * Lockhart was co-founder and managing director of Greenwich, Connecticut-based NetRisk Inc., a firm that provides risk-management and software consulting to financial institutions and investment-management firms. Mortgage Banking interviewed Lockhart one-on-one in late October and again in early November.
Q: How would you describe the effect so far of the government rescue of Fannie Mae and Freddie Mac on the availability and pricing of mortgage credit? What is your outlook for both credit availability and mortgage rates?
A: First of all, I guess the key thing is that if we hadn't put them in conservatorship, the impact at this point would be extremely adverse because they were at the point where they would actually start to pull back. And they were actually starting to sell their portfolio our, and it was going to have an extremely negative impact.
The conservatorship itself has been positive in my view, and certainly you [could] see that in the first week or two. But since then, there have been so many other moving pieces; it's hard to say what the impact has been on the mortgage market. Our view is that as the dust settles and people understand all these changes, then we'll start to see mortgage spreads starting to shrink again and then mortgage rates come down.
Q: And in terms of credit availability, have the GSEs expanded their market share? They had slipped some in the summer.
A: Effectively what's happened, when you look at it, Fannie and Freddie and FHA [the Federal Housing Administration] are really the providers of mortgages at this point in this country--and what's really happened is that mortgage share has gone from fannie and Freddie [over] to FHA as [Fannie and Freddie] raised some of their fees and tightened their credit [underwriting]. At this point, as you know, they decided not to increase ... their adverse market fees--they were going to double from 25 basis points to 50 basis points. They decided not to do that and they are relooking at their credit lines, if you will, to see where it makes sense to make changes. They still have a very big market share.
Q: You say that part of their share has been lost to FHA?
A: The reason their market share has come down is that FHA's share has gone up. [FHA's market share] has gone up a couple of percent to 15 percent, and so that's really what's happening, to the extent they are losing market share--and not a lot, but they are losing some. They were 80 percent and they are probably somewhere below that now, but still they've conquered the mortgage market.
Q: To what extent has the conservator--the Federal Housing Finance Agency--been able to look more closely at the holdings of Fannie and Freddie, which is something that you have wanted to do in the past? What are you finding in those holdings? Are there any unforeseen problems there?
A: [W]e have been very close to them for the last so-many...