Two Democrats are calling on the regulator who oversees Fannie Mae and Freddie Mac to bring private capital into the housing finance system and boost credit through the two bailed-out mortgage businesses.
Senators Elizabeth Warren, D-Mass., and Mark Warner, D-Va., wrote a letter to Federal Housing Finance Agency Director Mel Watt Tuesday calling on him “to build a housing finance infrastructure for the future” with a number of logistical moves, a day before Watt is due to appear before Congress for the first time since taking office in January.
As the government official in charge of Fannie and Freddie, Watt has reversed course from his predecessor and taken a number of limited but significant steps to extend home loans to more families. Fannie and Freddie increase demand for home loans by buying mortgages from lenders, bundling them into securities, and selling those securities to investors with government-backed insurance in case they go bad.
In the wake of the housing crisis, Fannie and Freddie and other government agencies have backed the vast majority of all new loans.
“Millions of creditworthy families are struggling to get mortgages and buy a home,” Warren said in a comment released with the letter. “We believe FHFA can use its existing authority to extend credit to responsible families and, at the same time, prepare the housing finance system for the end of government conservatorship.”
Warren, who serves on the Senate Banking Committee alongside Warner, voted in May against legislation based on a bill that Warner had helped write that would have phased out Fannie and Freddie and replaced them with a system of private capital with a limited government backstop that would kick in after private investors had taken the first loss.
Warner said that “while we work in Congress to pass comprehensive housing finance reform, we are asking FHFA to move responsibly and transparently as they lay the foundation for a system that better protects taxpayers and improves access to credit for homeowners.”
In their letter, Warren and Warner ask Watt to move on several items, including ones relating to Watt’s effort to have the two companies issue a single security, a move that he believes will increase liquidity in the market for mortgage-backed securities.
Among the other actions they recommend is a call to consider allowing lenders to use credit scores other than FICO scores. Based on FICO scores, credit for home loans remains very tight: The 10th percentile of FICO scores for new loans was 661 in July, up from the low 600s prior to the crisis, according to the Urban Institute.
Watt is set to appear before Warren, Warner and the other members of the Banking Committee Wednesday morning. Although he has sketched out his agenda for the FHFA in public speeches, Wednesday will be the first time he will have to answer questions from senators. He is likely to face tough questions from Republicans who would prefer to see Fannie and Freddie’s market footprint shrink.
