The Growing Shadow of Political Money

The following, also taken from the NY Times, is what will set the table for the next financial disaster. Anyone who is naive enough to think that Congress and the bank regulators are NOT vulnerable to the lobbying of the Street are seriously deluding themselves. Any bets on who is going to foot the bill ...  By THE EDITORIAL BOARD JAN. 24, 201 Like bettors checking Las Vegas odds on the Super Bowl, specialists in the nation’s booming campaign finance industry are tracking the action in the 2016 elections, not so much to assess the candidates as to see how much of a payout is likely this time around in the grand casino of American politics. The record total of $6.3 billion spent on the presidential and congressional elections of 2012 is only the starting point. Estimates of next year’s likely total are running between $7.5 billion and $8 billion. This moneyed universe is certain to keep expanding as the political industry’s managers and their candidates master the unlimited fund-raising and spending devices they now have at hand. The sheer numbers should be enough to raise public alarm. But needed reforms are going nowhere, with too many congressional members busy bolstering their incumbency with the help of the same large-scale donors. In last year’s elections, the 100 biggest campaign check writers gave $323 million, plus many millions more in anonymous donations to politically active “social welfare” groups and other new money troughs. According to a report by Politico, total spending by the 100 ultra-donors exceeded that of the 4.75 million ordinary Americans who made smaller donations of $200 or less. The risk of special-interest corruption? Five years ago, when the Supreme Court’s Citizens United decision dashed decades of sensible controls by equating unlimited corporate and union spending with individual free speech, Justice Anthony Kennedy reassured the nation that full disclosure of donors would be safeguard enough He envisioned a world, nonexistent, where disclosure lets citizens “see whether elected officials are ‘in the pocket’ of so-called moneyed interests.”

But Congress then killed healthy disclosure requirements, and the way things are working out, with untraceable donations on the rise, it’s more the reverse: a case of moneyed interests moving snugly into the pockets of grateful officials. Citizens United is just one of the threats to fair campaigning that is posed by runaway money. No less pernicious has been the rise of the nonprofit groups posing as “social welfare” organizations, while in truth they are political machines. This fiction is garnering large donations from players seeking to hide under protections in the tax code. The I.R.S. has timidly retreated from policing this abuse because of Tea Party complaints. The Federal Election Commission, charged with policing campaigns, is even more inert, paralyzed by an enforcement standoff engineered by Republican commissioners. Antidotes to the politics of toxic money, in the form of a package of reforms, were offered last week to the new Congress. One would rein in the super-PAC cornucopia of big money for candidates pretending to be uninvolved. Another would strengthen ordinary Americans’ political speech by updating the public financing system for presidential elections and creating a badly needed new one for congressional races. A third, delivering on Justice Kennedy’s dream, would mandate full disclosure of large-scale contributions and of the identities of affluent donors now playing politics from the shadows. But so far, reform of any sort has been no more than a dream. In this unresponsive Congress, it is likely to remain so.

An Uncertain Future for Dodd-Frank

If you care to go back to some postings from 2008 and 2009 (specifically, Sept. 14, 2008), you will see a (sort of) primer on the creation of Mortgage-Backed Securities (MBS). In summary, an issuer of an MBS either creates a "Pass Through", which is a passive trust or a more complex structure such as a "Collateralized Mortgage Obligation" or CMO. Growing out of the CMO, the CDO or Collateralized Debt Obligation has become the structure of choice for the Street today. Many, if not most, CDO's contain some sort of credit enhancement like a Credit Default Swap or CDS. If this sounds familiar, it should. CDO's utilizing a CDS structure were the bonds that sank the ship in 2008 - think A.I.G. and lots of bail-out money. A CDO is simply an arbitrage between the market for "collateral" - Pass Through MBS issued by Ginnie Mae, Fanny Mae, Freddy Mac or a Mortgage Company originating un-securitized "Whole Loans", many of which are not the best credits and are known as sub-prime loans. To get a deal done requires that an "issuer" be present. Typically the issuer is a Special Purpose Entity or SPE owned by an eleemosynary organization - usually a shell created by the bank behind the deal. In addition to an issuer, a deal must be structured so that the cash flow is different from the underlying collateral, e.g., differing average life, maturity & etc. The deal must also contain an "equity" component or tranche. Now, in the good old days when I was in the Street, you could NOT get a deal done unless you first had the equity placed with an investor. Needless to say, institutions willing to take the kind of risk that went along with equity tranche ownership, were few and far between. Beginning in about 2005 or 2006, there was so much demand for mortgage credit and there was so much money in the arbitrage, that the Street began to hold the equity tranches themselves. You know what that ownership led to. Now, it is happening again. The following was taken from the NY Times of  Jan. 24: By NY Times  EDITORIAL BOARD JAN. 24, 2015 There have been powerful reminders in recent days that the financial system needs more regulatory vigilance, not less. But they come just as Republicans are setting their agenda in Congress, complete with vows to weaken the Dodd-Frank reform law. On Thursday, The Times’s Nathaniel Popper reported that Goldman Sachs is using the bank’s money to make big bets in real estate. That appears to be a violation of the spirit, if not the letter, of Dodd-Frank, which aims to avoid bailouts by reducing concentrated risks at banks. Similarly, the still-unfolding fallout from the unexpected surge this month in the value of the Swiss franc — including huge losses at brokerages and hedge funds — serves as a reminder that certain foreign-exchange derivatives were allowed to escape regulation under Dodd-Frank. The argument against such regulation, as put forth by Obama officials, was that foreign exchange trading is staid and stable, a view that never made sense and that has since been undermined, not only by the volatile Swiss franc episode, but by recent revelations of widespread manipulation of the foreign-exchange market by big banks. Unfortunately, those regulatory challenges are not the only ways in which Dodd-Frank’s promise has gone unmet. The law required regulators to write hundreds of rules and conduct dozens of studies before the law’s many reforms could be put into place. In the process, some regulators found room to indulge their pro-bank biases. Regulators were also subject to unrelenting pressure — by bank lobbyists; by Republicans, who have been hostile to the law from the start; and by several Democrats, who want credit for passing the law but also want to please their Wall Street contributors.

The result has been delays, weak rules and political setbacks, including budget constraints that impair regulatory enforcement of the law and, recently, the outright repeal of a provision to curb excessive speculation by banks. In a maneuver that hints at things to come, that repeal was achieved by attaching the provision to a spending bill that President Obama and many congressional Democrats said was more important than standing firm on the reform. Going forward, even the Consumer Financial Protection Bureau, the biggest success of the Dodd-Frank law, is threatened by Republicans who want to change the agency’s financing and leadership structure to make it less independent. The question is whether President Obama and Democrats in Congress will repel the efforts of opponents to strip away reforms before they even have a chance to take root.

I'm Back ... For a While Anyhow ...

The last time that the shit hit the fan, I wasn't forceful enough in trying to get the word out to - who knows - I seriously doubt that anyone could have stopped the disaster. Also, that particular train wreck was relatively easy to see coming - the housing market was way overheated.

Now, who knows? My objective this time around is to pick through the news and present other people's views on the market (See below).  When I have an opinion I'll weigh in also.

There are some interesting things to keep an eye on. The House Financial Services Committee is headed by a former MD - an osteopath. Really excellent qualifications for overseeing Wall Street and the mortgages agencies, don't you think? He's off to a good start (see below).

Relative to the markets, I really do not have a clue. Does it feel like the DOW should be where it is, or anything else for that matter - due for a serious correction? Maybe ... we'll just wait and see.

More from the Times: Kicking Dodd-Frank in the Teeth JAN. 10, 2015 Fair Game By GRETCHEN MORGENSON The 114th Congress has been at work for less than a week, but a goal for many of its members is already evident: a further rollback of regulations put in place to keep markets and Main Street safe from reckless Wall Street practices. The attack began with a bill that narrowly failed in a fast-track vote on Wednesday in the House of Representatives. It is scheduled to come up again in the House this week. The bill, introduced by Representative Michael Fitzpatrick, a Pennsylvania Republican who is a member of the House Financial Services Committee, has three troublesome elements. First, it would let large banks hold on to certain risky securities until 2019, two years longer than currently allowed. It would also prevent the Securities and Exchange Commission from regulating private equity firms that conduct some securities transactions. And, finally, the bill would make derivatives trading less transparent, allowing unseen risks to build up in the system. Of course, you wouldn’t know any of this from the name of the bill: the Promoting Job Creation and Reducing Small Business Burdens Act. Or from the mild claim that the bill was intended only “to make technical corrections” to the Dodd-Frank legislation of 2010. Here’s the game plan for lawmakers eager to relax the nation’s already accommodating financial regulations: First, seize on complex and esoteric financial activities that few understand. Then, make supposedly minor tweaks to their governing regulations that actually wind up gutting them.

“We’re going to see repeated attempts to go in with seemingly technical
changes that intimidate regulators and keep them from putting teeth in regulations,” predicted Marcus Stanley, policy director at Americans for Financial Reform, a nonpartisan, nonprofit coalition of more than 200 consumer and civic groups across the country. “If we return to the precrisis business as usual, where it’s routine for people to accommodate Wall Street on these technical changes, they’re just going to unravel the postcrisis regulation piece by piece. Then, we’ll be right back where we started.”
The bill was put forward on the second day of the new Congress, in an expedited process, which didn’t allow for debate among members. This process is supposed to be reserved for noncontroversial bills and requires support from a two-thirds majority to prevail. It fell just short of achieving that level, with a vote of 276 to 146, overwhelmingly backed by Republicans and opposed by most Democrats.

A central element of the bill chipped away at part of the Volcker Rule, the regulation intended to reduce speculative trading activities among federally insured banks. The bill would give the institutions holding collateralized loan obligations — bundles of debt — two additional years to sell those stakes.
The sales were required under the Volcker Rule, which bars banks from ownership in or relationships with hedge funds or private equity firms, many of which issue and oversee these instruments. Like the mortgage pools that wreaked such havoc with United States banks in the most recent crisis, C.L.O.s can pose high risks for banks.

The creation of such securities has been torrid recently; $124.1 billion was issued last year, compared with $82.61 billion in 2013, according to S&P Capital IQ. Among the banks with the largest C.L.O. exposures are JPMorgan Chase and Wells Fargo; according to SNL Financial, a research firm, JPMorgan Chase held $30 billion and Wells Fargo $22.5 billion in the third quarter of 2014, the most recent figures available. The next-largest stake — $4.7 billion — was held by the State Street Corporation.

Given the size of these positions, it’s not surprising the institutions want more 

time to jettison them. But the new legislation represents Wall Street’s second reprieve on these instruments. After banks objected to the sale of their holdings last spring, the Federal Reserve gave them two years beyond the initial 2015 deadline to get rid of them.

Now they want another two years.

Although the top three banks had unrealized gains in their C.L.O. holdings in the third quarter, SNL said some banks were facing losses. And that was before the collapse in the price of oil, which has undoubtedly pummeled some of these securities.

A second deregulatory aspect in the Fitzpatrick bill relates to the lucrative private equity industry, which remains loosely regulated. The bill would exempt some private equity firms from registering as brokerage firms with the S.E.C. Under securities law, such registration is required of firms that receive fees for investment banking activities, like providing merger advice or selling debt securities.

Private equity firms are typically registered only as investment advisers, so submitting to broker-dealer regulation would result in more frequent examinations and more rules.

These firms don’t like that. But their investors could benefit from closer regulatory scrutiny of costly conflicts of interest in these operations. For example, a private equity firm providing merger advice to a company its investors own in a fund portfolio — not an arm’s-length transaction — could easily charge more for those services than an unaffiliated firm would.
Finally, the bill’s changes in derivatives would reduce transparency and increase risks in this arena by allowing Wall Street firms with commercial businesses — like oil and gas or other commodities operations — to trade derivatives privately and not on clearinghouses.
Trading on clearinghouses generates accurate price data that help both banks and regulators value these instruments. Because these clearinghouses perform risk management, problematic positions are easier to spot.
If this change goes through, it will be the second recent victory on derivatives for big banks. Last month, Congress reversed a part of the Dodd-Frank law barring derivatives from being traded in federally insured units of banks. Taxpayers may be on the hook for bailouts, therefore, if losses occur in the banks’ derivatives books.

The Dodd-Frank law, as written back in 2010, was by no means a comprehensive fix for a risky banking system. And it is more vulnerable to attack, in part, because of its complexity and design. Dodd-Frank delegated so much rule- making to regulators that it essentially invited the institutions they oversee to fight them every inch of the way. And when Congress backs the industry in these battles, it’s no contest. Still, it is remarkable to watch the same financial institutions that almost wrecked our nation’s economy work to heighten risks in the system. “The truth about Dodd-Frank is it’s pretty moderate and pretty compromised already,” Mr. Stanley of Americans for Financial Reform said. “Any further compromise and it tends to collapse into nothingness.” Which is exactly what Wall Street seems to be hoping for.

The following is an op-ed piece from the NY Times. It talks about a little noticed but very important line item in the recently passed budget bill. As everyone knows, cutting taxes does NOT increase spending to the extent that proponents of the J-Curve believe. However, economic lightweights like ALL members of Congress, continue to try to convince the rest of us that their policies will work. For a refresher in how tax affecting legislation becomes law, please refer to my posts from a few years ago where I summarize the methods employed by The Hammer to curry favor on the Hill. (look for the picture of DeLay that was photo-shopped onto Nick Nolty's body.) A Republican Ruse to Make Tax Cuts Look Good By EDWARD D. KLEINBARD JAN. 2, 2015 LOS ANGELES — AS Republicans take control of Congress this month, at the top of their to-do list is changing how the government measures the impact of tax cuts on federal revenue: namely, to switch from so-called static scoring to “dynamic” scoring. While seemingly arcane, the change could have significant, negative consequences for enacting sustainable, long-term fiscal policies. Whenever new tax legislation is proposed, the nonpartisan Congressional Budget Office “scores” it, to estimate whether the bill would raise more or less revenue than existing law would. In preparing estimates, scorekeepers try to predict how people will respond to a new tax law. For example, if Congress contemplates raising the excise tax on cigarettes, scorekeepers consider existing trends in cigarette consumption, the likelihood that the higher taxes will induce some smokers to quit, and the prospect that higher prices will increase incentives for cigarette smuggling. There are no truly “static” revenue estimates. These conventional estimates do not, however, include any indirect feedback effects that tax law changes might have on overall national income. In other words, they do not incorporate macroeconomic behavioral changes. Dynamic scoring does. Proponents point out, correctly, that if a tax proposal is large enough, then those sorts of feedback effects can aim the entire economy on a slightly different path. Such proponents argue that conventional projections are skewed against tax cuts, because they do not consider that cutting taxes could lead to higher economic output, which would make up at least some of the lost revenues. They maintain that dynamic scoring will, therefore, be both more neutral and more accurate than current methodologies.

But the reality is more complex. In order to look at the effects across the entire economy, dynamic modeling relies on many simplifying assumptions, like how well people can predict the future or how much they care about their children’s future consumption versus their own.

Economists disagree on the answers, and different models’ predicted feedback effects vary wildly, depending on the values selected for those uncertain assumptions. The resulting estimates are likely to incorporate greater uncertainty about the magnitude of any revenue-estimating errors and greater exposure to the risk of a political thumb on the scale.

Consider the nonpartisan scorekeepers’ estimates of the consequences of a tax-reform bill proposed last year by Representative Dave Camp, Republican of Michigan. Using different models and plausible inputs, the scorekeepers estimated that, under the bill, total gross domestic product might rise between 0.1 percent and 1.6 percent over the next decade — a 16-fold spread in projected outcomes. Which result should be the basis of congressional scorekeeping?

But the bigger problems lie deeper. Federal deficits are on an unsustainable path (as it happens, because of undertaxation, not excessive spending). Simply cutting taxes against the headwind of structural deficits leads to lower growth, as government borrowing soaks up an ever-increasing share of savings.

The most optimistic dynamic models get around this by assuming that the world today is in fiscal equilibrium, where the deficit does not grow continuously as a percentage of gross domestic product. But that’s not true. If you add the reality of spiraling deficits into those models, they don’t work.
To make these models work, scorekeepers must arbitrarily assume either that we tax more and spend less today than is really the case — which is what they did for the Camp bill — or assume that a tax cut today will be followed by a spending cut or tax increase tomorrow. Economists describe such a move as “making counterfactual assumptions”; the rest of us call it “making stuff up.”
In practice, these models are political statements. They show the biggest economic effects by assuming that tax cuts are financed by unspecified future spending cuts. The smaller size of government, not the tax cuts by themselves, largely drives the models’ results.

Further, the models are not a step toward more neutral revenue estimates, because they assume that, while individuals make productive investments, government does not. In reality, government spending contributes significantly to economic output. Truly dynamic modeling would weigh the forgone economic returns of government investments against the economic gains from lower taxes. The Republicans’ interest in dynamic scoring is not the result of a million- economist march on Washington; it comes from political factions convinced that tax cuts are the panacea for all economic ills. They will use dynamic scoring to justify a tax cut that, under conventional scorekeeping, loses revenue. When revenues do in fact decline and deficits rise, those same proponents will push for steep cuts in government insurance or investment programs, because they will claim that the models demand it. That is what lies inside the Trojan horse of dynamic scoring. Edward D. Kleinbard, a law professor at the University of Southern California and a former chief of staff of the Congressional Joint Committee on Taxation, is the author of “We Are Better Than This: How Government Should Spend Our Money.”

In previous posts, I have pointed out that market participants tend to have really short memories. I also tried to point out, that the players in the CBO market, especially those that rely on Credit Default Swaps, or CDS - to obtain investment grade ratings - should NEVER retain any segments of the CBO's that they create. The following from the Times Editorial Board can be considered as a warning that the market is, once again, heading for the precipice. Betting on Default By THE EDITORIAL BOARD JAN. 2, 2015 Imagine a lender demanding that you miss a payment. That is the situation described in a recent article in The Wall Street Journal. In 2013, GSO Capital Partners, the debt-investing arm of the private equity firm the Blackstone Group, refused to renew a $122.3 million loan to the Spanish gambling company Codere unless it delayed paying interest on other existing debt. Why? It turns out that GSO had placed a bet that Codere’s existing debt would not be paid on time. When, lo and behold, the payment was late, GSO collected on its bet. The bet in this scenario was a credit default swap, in which one party to the transaction — say, a bank, hedge fund, insurer or other institutional investor — agrees to pay the other party in the event of a bond default. Credit default swaps, a type of derivative, can be used to hedge against losses on bonds that investors own, or to speculate on how the underlying companies will perform. If this sounds familiar, it should. In the years leading up to the financial crisis, banks and investors gorged on toxic mortgage bonds that were supposedly “insured” against loss with credit default swaps. When the bonds went bad, many swaps turned out to be worthless as well, necessitating bailouts to cushion catastrophic losses. The Dodd-Frank financial reform law was supposed to curb speculation in swaps. But as The Journal has reported, hedge funds are increasingly using swaps to wager on whether weak firms will live or die. RadioShack, the troubled consumer electronics retailer, is one of several prominent examples. In December, RadioShack’s total debt came to about $1.4 billion, but swaps outstanding on the performance of the debt totaled $23.5 billion. Similarly, J.C. Penney, the ailing department store chain, had total debt of some $8.7 billion, but swaps outstanding on the debt totaled $19.3 billion.

Those gaps suggest excessive speculation, though it is hard, if not impossible, to gauge the precise exposure of funds to big losses. What is known is that a hedge fund that is betting on a company’s default has an incentive to push it over the edge. Conversely, a fund that is betting a troubled company will not default has an incentive to keep it afloat, at least long enough to avoid a big payout. Either way, the company becomes a pawn in a financial game. Speculative activity is likely to increase. Last month, Congress repealed an anti-speculation provision of Dodd-Frank that would have prevented federally insured banks from conducting several types of swap transactions. In addition, the Federal Reserve recently gave the banks two extra years to meet a Dodd-Frank provision requiring them to sell their investments in private equity funds and hedge funds. The next crisis will differ from the last crisis in its origins and effects. But it is probably safe to assume that sooner or later, poorly regulated credit derivatives will again play a role in damaging the economy.

© 2015 The New York Times Company

The following was published in the NY Times a couple of months ago. It's really important to take note of the FACT that market participants have really short memories. I'm going to try to do some more in depth analysis of the balance sheets of FN and FH so that we can determine if their leverage ratios are back above 100 - AGAIN!

WASHINGTON — The federal overseer of Fannie Mae and Freddie Mac on Tuesday announced a shift in policies intended to maintain the mortgage finance giants’ role in parts of the housing market, spur more home lending and aid distressed homeowners.

“Our overriding objective is to ensure that there is broad liquidity in the housing finance market and to do so in a way that is safe and sound,” Melvin L. Watt, the new head of the Federal Housing Finance Agency, said in a speech at the Brookings Institution in Washington.

But Mr. Watt’s announcement raises bigger — and divisive — questions about the role of the now-profitable mortgage institutions, which were fully taken over by the federal government during the financial crisis to avoid their bankruptcies. Should they become broader instruments of government housing policy? Or should they winnow their portfolios and allow the private markets to take over?

Mr. Watt’s changes would perpetuate the presence of the two government-sponsored enterprises in mortgage finance, rather than shrinking it.

Photo

Mel Watt said Fannie Mae and Freddie Mac would keep current limits on the size of loans they guarantee, rather than reduce those limits, as previously proposed.     CreditYuri Gripas/Reuters

“Director Watt has signaled that he will turn from focusing on the enterprises as institutions in intentional decline to institutions that should be better prepared to form the core of our system for years to come,” said Jim Parrott of the Urban Institute in an analysis of Mr. Watt’s remarks. “This shift in focus ripples through the many decisions announced in the speech and signals a watershed moment in the brief history of the agency.”

Many Republicans and some Democrats have forcefully argued that Fannie Mae and Freddie Mac, which sustained huge losses when the housing market collapsed and required a costly government bailout, should step back to encourage the private market to assume more of the risk of financing housing.

Mr. Watt laid out several specific measures. For example, rather than reducing current limits on the size of the loans they guarantee, as previously proposed by the former overseer, Fannie and Freddie would keep the current, relatively loose, limits in place. The two enterprises back about two-thirds of all new mortgages.

“This decision,” Mr. Watt said, “is motivated by concerns about how such a reduction could adversely impact the health of the current housing finance market.”

The new director also loosened rules that obligated banks to buy back distressed loans. Mr. Watt said that the mortgage financiers would now allow two delinquent payments in the first 36 months after their acquisition of a loan, and that they would eliminate “automatic repurchases when a loan’s primary mortgage insurance is rescinded.”

Those changes are intended to stimulate mortgage lending at a moment when the housing market has softened in response to higher interest rates. Many banks have tightened credit standards, in part because of the requirement that they take losses if borrowers default.

In addition, Mr. Watt said he was looking into “an independent dispute resolution program when lenders believe a repurchase is unwarranted” and clarifying Fannie and Freddie’s underwriting rules.

Mr. Watt said the housing institutions would do more to communicate with the 750,000 homeowners who might benefit from the Home Affordable Refinance Program, which helps homeowners modify their mortgage loans. He said he would not change the eligibility requirements for that program, though, because the number of additional borrowers who might be helped is “relatively small.”

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Housing experts remain sharply divided on the proper role for Fannie and Freddie. Should they be instruments of government housing policy under conservatorship or operate with a reduced, less-risky footprint?

“You’re a conservator,” said Mark A. Calabria, director of financial regulation studies at the Cato Institute, a libertarian Washington research group. “The focus should be on conserving asserts and nursing Fannie and Freddie back to health. For him to bring up balancing those concerns with the soundness of the housing market and with promoting essentially risky lending, it’s contrary to what a conservator is supposed to do."

But others said that Fannie and Freddie could and should do more. “We encourage Director Watt to address two additional issues that are exceedingly important to America’s families,” Julia Gordon, the director of housing finance and policy at the Center for American Progress, a left-of-center research group, said in a statement.

Fannie and Freddie, she said, should “provide struggling borrowers with principal reduction, an approach that has been shown to result in highly sustainable loan modifications.” Such a policy, which the White House has supported, would let banks reduce the amount that homeowners owe on their mortgages if their house is worth less than the value of their loan.

The mortgagors should also contribute to two federal funds that “support affordable rental housing for those at the bottom of the economic ladder.”

Mr. Watt’s remarks come as Fannie and Freddie have returned to profitability and as lawmakers have started to more seriously consider how to remove them from government conservatorship.

The federal government rescued Fannie and Freddie from collapse in 2008, with a bailout that cost about $190 billion. Since then, they have stabilized their loan portfolios and paid about $200 billion in dividends to the federal government.

A bill sponsored by the Democratic chairman of the Senate Banking Committee and its ranking Republican would substantially reduce the role of Fannie and Freddie.

Mr. Watts’s plan won support from the White House. “We applaud the Federal Housing Finance Agency for issuing certainty and clarity on the rules of the road for loans backed by Fannie Mae and Freddie Mac,” said Jay Carney, the White House press secretary, at a press briefing Tuesday. “Today’s announcements represent a meaningful step toward helping more Americans own their home and continued strengthening of the housing market.” A spokeswoman said the White House had not consulted with the Federal Housing Finance Agency on the specifics of Mr. Watt’s plan.

The fragile state of the housing recovery and lingering concerns about lending regulations — along with the fact that Congress has failed to act even on issues with broad bipartisan agreement — has forestalled any legislation.

On Thursday, the Senate Banking Committee is expected to vote on a bill that would wind the agencies down. But Congress is not expected to pass any reform measures in the foreseeable future.

Mr. Watt was confirmed as the head of the Federal Housing Finance Agency at the end of last year. His predecessor, Edward J. DeMarco, frequently clashed with Democrats, refusing to put in place a White House proposal to reduce the principal on so-called underwater mortgages.