The nation's top federal housing regulator who oversees mortgage giants Fannie Mae and Freddie Mac urged lawmakers on Tuesday to begin laying the groundwork for an overhaul of the housing finance market.
Edward DeMarco, acting director of the Federal Housing Finance Administration (FHFA), told the House Financial Services Committee that the major impediment to his agency's ability to boost the housing market and wind down Fannie and Freddie is the lack of a legislative direction from Congress and the Obama administration.
For the past couple of years, the White House and lawmakers have batted around ideas on how to proceed but, so far, no plan has emerged.
"Even if it's not the whole picture, we need parameters on how to gradually shrink Fannie and Freddie," he said.
"There are steps we could take incrementally, starting today."
DeMarco, who has come under fire from a broad range of groups for not doing enough to help homeowners, said stepping up private investment in the mortgage market needs to happen within five years and "we should be moving ahead now."
But, he argued, that it is "very hard to put a strict timeline on something when it's still in the design phase."
He said that while he doesn't anticipate that government's complete exit from the mortgage-finance picture, the dial has to be turned toward more private investment.
In the $10 trillion mortgage market, DeMarco argued that between zero and $10 trillion there are "plenty of places to reset dial and still have vibrant role for government."
He suggested that Congress start with Federal Housing Administration (FHA) and Veterans Affairs housing programs, determine how they should serve the market and "then see what's left."
Panel ranking member Maxine Waters (D-Calif.) asked DeMarco the cost of doing nothing while pressing the panel to hold hearings on the issue.
"There's a continuing to risk to taxpayer support and it's making it harder for investors to return to the market, especially without the rules of the road in what mortgage lending is going to be," DeMarco said.
"I welcome as much congressional direction and legislation that we can get," he said.
So far, taxpayers have invested $188 billion since Fannie and Freddie were taken over by the government in September 2008, he said.
DeMarco told Republican Rep. John Campbell (Calif.) that not moving toward rebalancing the scales away from government control crowds out potential private investors who will "deploy capital somewhere else."
House Financial Services Committee Chairman Jeb Hensarling (R-Texas) said inaction is no longer an option.
In the meantime, DeMarco said his agency will offer up $30 billion in mortgage risk out of its $5 trillion book of business to the private market as a way to receive more input as to how the agency should proceed.
"It's a tiny fraction but it's a start," he said.
He also is considering another increase in guarantee fees as an important component to attracting private investment, and he said that those investors have told him the current levels are "within striking distance" to helping to increase participation.
He also suggested a broader discussion on conforming loan limits that also would help the process.
Still, DeMarco's tenure at the agency may be coming to an end.
President Obama is considering replacements for DeMarco, including Rep. Mel Watt (D-N.C.), according to several news reports.
Despite the calls for his firing, DeMarco assured lawmakers that he has a "good working relationship" with the White House and he knows where they agree and disagree on policy.
On Tuesday, he was interrupted several times by protesters during his opening statement, most shouting about the need for more affordable housing.
DeMarco has faced specific criticism over his lack of willingness to make principal reductions on mortgages. He determined it was not in the best interest of taxpayers, despite lawmakers' arguments to the contrary.
"This is an emotional issue and I take very seriously the harm imposed on these families by the financial crisis," DeMarco said.
"We've got to rebuild the system so we don't put families at risk again or put taxpayers at risk again."