Trump Considering Pence Aide for Fannie-Freddie Regulator

(Bloomberg) -- The Trump administration is considering nominating economist Mark Calabria to run Fannie Mae and Freddie Mac’s regulator, a potentially controversial pick because he has advocated for policies that would reduce the government’s role in the housing market.

Calabria is a leading candidate to replace Federal Housing Finance Agency Director Mel Watt, a Barack Obama appointee who has led the regulator since President Donald Trump took office, several people familiar with the matter said. Calabria is currently Vice President Mike Pence’s chief economist.

Among the ideas Calabria has previously pushed for are putting Fannie and Freddie into receivership, a process similar to bankruptcy. The companies, which are crucial to the U.S.’s $10 trillion mortgage market, have been under federal control since the 2008 financial crisis.

Calabria, a former scholar at the libertarian Cato Institute, has also called for abolishing the mortgage-interest deduction, something millions of homeowners benefit from. In addition, he has supported getting rid of government subsidizes for the 30-year fixed rate mortgage.

The White House declined to comment.

Fannie and Freddie don’t lend. Instead, they underpin the housing market by buying mortgages from banks, packaging them into securities and offering bond investors guarantees in case borrowers default.

Calabria’s past views have made those with vested interests in the companies --including bankers and bond investors -- leery of him potentially leading the FHFA. But he has sought to calm those concerns in private meeting in recent months by presenting a more tempered approach to overhauling Fannie and Freddie, some of the people said.

Since housing is such a major component on the U.S. economy, analysts said it’s unlikely the White House would nominate someone who would rattle the mortgage market. That’s why Calabria could end up being less of a bomb thrower that his prior opinions might suggest, said Compass Point’s Isaac Boltansky.

“He is far more pragmatic than dogmatic," Boltansky said. “I don’t see him walking in there with an ax. There will surely be areas of curtailment, but I think it will be measured and strategic."

Fannie fell less than 1 percent to $1.20 at 12:52 p.m. in New York trading, while Freddie slipped 1.65 percent to $1.19.

Watt’s term ends in early January, and the Trump administration has discussed installing installing an interim FHFA chief while it awaits Senate approval of a permanent nominee, the people said. That person would have to have already been confirmed by the Senate. Candidates to run the FHFA temporarily include Comptroller of the Currency Joseph Otting, some of the people said. Otting would remain OCC chief while leading the FHFA, the people said.

Whoever Trump picks for the FHFA will have significant influence over the housing finance market. The FHFA director can affect mortgage rates by ordering Fannie and Freddie to raise or lower certain fees they charge lenders. Its leader also can restrict the size of home loans that Fannie and Freddie can buy, leaving such borrowers to get their mortgages financed through the private market.

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