As part of an ongoing series of hearings on how to reform housing finance, the Senate Banking Committee heard testimony on Tuesday from the Federal Housing Finance Agency’s first inspector general, Steve Linick.
Sen. Richard Shelby (left), R-Ala., ranking member on the committee, said in his opening remarks that “first and foremost,” Linick “must provide oversight of FHFA’s conservatorship of Fannie and Freddie to ensure that taxpayer dollars are spent wisely.”
Shelby went on to say that the IG’s work “shines a light on the larger issue of the costs arising from the administration’s failure to propose a detailed plan to end the conservatorship of Fannie and Freddie,” adding that it has been three years and 98 days since the conservatorship began. The conservatorship, Shelby said, “was never intended to last this long. Nor was FHFA designed to handle the ‘conservatorship to nowhere’ that we face today.”
As the IG noted, Shelby said, it has found “significant shortfalls” in FHFA’s examination program, including having “too few examiners overall to ensure the efficiency and effectiveness” of FHFA’s oversight of the GSEs. “This is no small finding,” Shelby said, “since examination is the primary means by which FHFA supervises and regulates the GSEs.” This “serious problem exists in large measure because the perceived short-term nature of the conservatorship makes it difficult for FHFA to hire enough qualified examiners.”
Sen. Tim Johnson, D-S.D., chairman of the committee, stated in his opening remarks that the “need to reform our housing finance system and the need to improve the housing market go hand in hand.” The FHFA, as conservator of Fannie Mae and Freddie Mac, “could play a significant role in improving the housing market, but based on reports from the inspector general’s office, there are deficiencies at the agency that are holding back those efforts.”
Johnson went on to say the he’s “concerned” that the reports produced by the IG’s office show “several negative trends in FHFA’s oversight of operations” at Fannie and Freddie. First, he said, “the regulator defers to the GSEs on major decisions without independently verifying the benefits to the conservatorship or the taxpayers.”