Does Naming OCC’s Otting Acting Director of FHFA Signal Broader GSE Reform Ahead?

Jospeh Otting


President Trump has named Comptroller of the Currency Joseph Otting as acting director of the Federal Housing Finance Agency beginning Jan. 6 after the end of the Director Mel Watt’s term.

The White House intends to nominate Mark Calabria, the chief economist for Vice President Mike Pence, to serve as the permanent FHFA director. Otting will serve in the role until Calabria is confirmed.

Under the Federal Vacancies Reform Act, the White House had two options to fill the acting director role: it could name one of Watt's lieutenants as acting director or appoint another temporary director who must have been previously confirmed by the Senate.

The administration's decision to appoint Otting instead of one of Watt's lieutenants is seen by some as a sign that the White House is looking to make immediate policy changes at the agency.

Congress appears unlikely to tackle housing finance reform anytime soon, but the FHFA has broad discretion to make changes to Fannie Mae and Freddie Mac, including potentially even recapitalizing them and returning them to the private sector.

Treasury Secretary Steven Mnuchin has made clear that GSE reform will be a priority next year and isn’t likely to see a temporary agency director as a setback. Particularly since Mnuchin and Otting are known to be close, many observers suggest they will move quickly on a new policy for the government-sponsored enterprises.

Otting's moves in the temporary role could signal the administration's broader GSE reform plans, observers said.

"The administration can end the profit sweep and allow Fannie Mae and Freddie Mac to retain earnings and rebuild capital," wrote Brian Gardner and Michael Michaud of Keefe Bruyette and Woods in an analyst note on Friday, "The administration can also sell Treasury's stake in the GSEs thus recapitalizing and releasing them to fully private ownership. Furthermore, we think FHFA can make additional changes to bring more private capital into the mortgage system via deeper mortgage insurance cover and expanded use of credit risk transfers both of which would, in our view, benefit the private mortgage insurers."