Thursday, November 27, 2014
Inquirer Daily News

Why brainy Mark Zandi might not be best choice to watchdog Fannie

Can a public policy guru take on Washington bureaucracy and finance-industry pushback?

Why brainy Mark Zandi might not be best choice to watchdog Fannie

UPDATE: Obama ended up proposing US Rep. and housing dove Mel Watt, D-N.C. for the Fannie-Freddie regulator job over Zandi. 5/1.

EARLIER: Frustrated with home-finance regulator Edward DeMarco's refusal to write down loan values for millions of Americans whose inflated mid-2000s mortgages are still worth more than their homes, the Obama administration wants to replace him as regulator of government-controlled home finance giants Fannie Mae and Freddie Mac. The Wall St Journal says a leading candidate is West Chester-based economist Mark Zandi, of Moody's Analytics, who has combined sober economic assessments with generally supportive comments on Obama's modestly stimulative policies in his many financial-news and Congressional committee appearances.

But people who have worked closely with Fannie and Freddie through their torturous recent history aren't sure the switch would speed the slow housing recovery. Convincing appearance and data control is certainly part of the job, and Zandi is good at those. But it's also important that the regulator be able to bring the agencies and the industry along with him -- areas in which Zandi's career as a private-sector economist haven't given him top-level exposure.

DeMarco, a PhD economist, has both kinds of qualities. He's a career Federal Home Finance Agency official who combines deep knowledge of how home finance works, and breaks down, with a solid working relationship with his counterparts at Treasury, HUD, FHA, Fannie and Freddie.

He has disappointed liberals who don't see why bankrupt homeowners in America are treated more harshly than bankrupt companies who routinely shave millions off their debts.

But DeMarco's strong standing in the Washington financial and housing bureaucracy has helped him stand firm in forcing Bank of America and other giant lenders to pay back tens of billions that Fannie and Freddie lost when banks stuck them with money-losing, badly-underwritten mortgages -- nudging the agencies back toward solvency after they faced ruinous losses and taxpayer bailouts.

Can Zandi match that insider experience? Can he get Washington and Wall Street, let alone Fannie and Freddie, to work together as DeMarco has? Or would he go down in flames as another smart policy wonk who couldn't get the cooperation he needed to make the changes he and the President want?

If DeMarco's right for the job, how did Fannie and Freddie get in such bad shape to begin with?

The housing pro was sent to the regulator to fix what less experienced hands had allowed to break. His predecessor, for seven and a half years under George W. Bush, was James B. Lockhart III, who went to prep school and Yale with Bush's father (who Lockhart served as boss of the Pension Benefit Guaranty Corp.), and who went on to fiddle and look the other way, while Fannie and Freddie bought all those lousy mortgage securities in the first place, pumping up the last, worst, most avoidable period of the housing bubble.

Joseph N. DiStefano
About this blog

PhillyDeals posts raw drafts and updates of Joseph N. DiStefano's columns and stories about Philly-area finance, investment, commercial real estate, tech, hiring and public spending, which he's been writing since 1989, mostly for the Philadelphia Inquirer.

DiStefano studied economics, history and a little engineering at Penn, taught writing at St. Joe's, and has written the book Comcasted, more than a thousand columns, and thousands of articles, and raised six children with his wife, who is a saint.

Reach Joseph N. at JoeD@phillynews.com or 215 854 5194.

Joseph N. DiStefano
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