Top housing finance regulator Mel Watt sought to allay lawmakers’ fears that mortgage giants Fannie Mae and Freddie Mac are returning to risky home lending, in his first visit to Capitol Hill as director of the Federal Housing Finance Agency on Wednesday.
“You can be assured that we are not making credit available to people that we cannot reasonably predict with a high degree of certainty that they will be able and willing to pay the mortgage,” Watt reassured lawmakers.
After becoming the regulator in charge of the two bailed-out government-sponsored enterprises in January, the former Democratic North Carolina representative charted out a new course that entails increasing access to mortgages rather than shrinking Fannie and Freddie’s presence.
That agenda has raised concerns from Republicans, who have said they are worried that Watt is entrenching the two government-sponsored enterprises and reprising the dynamic that led to their failures and bailouts in 2008.
Watt’s decisions as FHFA head “feed a perception that the old, failed status quo is slowly beginning to take hold again,” said Sen. Mike Crapo, R-Idaho, the ranking member of the Senate Banking Committee.
But Watt tried Wednesday to make clear that his goal was to see Congress overhaul the housing finance system and not to return Fannie and Freddie to their past roles. Doing so requires a “balance” between reducing risks to taxpayers and ensuring that people can get home loans, he said.
“Walking the line between safety and soundness and access to credit — that’s the space we operate in,” Watt said. While he has faced pressure from Republicans to focus on limiting risk, he also has been called on by Democrats to use the tools at his disposal to ease credit conditions, which remain tight in the wake of the crisis.
But Watt clarified that his goal is not to unilaterally entrench the role of Fannie and Freddie as government-run players in the secondary mortgage market. The government’s control of the two businesses “is not, cannot, should not be a permanent state, and it’s the role of Congress to define what the future state is,” Watt said during questioning from Crapo. “I don’t think there’s any ambiguity in anything I’ve said.”
Among Watt’s decisions that have raised concerns was his announcement in October that the GSEs would look to back home loans with down payments as low as 3 percent.
The agency would make a decision about low-down-payment loans before the end of the year, Watt said. Fannie and Freddie would buy such loans only if there were clear “compensating factors” that made clear that the borrowers would be able to pay the loans, such as higher credit scores or ongoing counseling.
A decision is also coming by the end of the year on the housing trust fund authorized by the 2008 law that created his agency, Watt said. The trust fund, which has never been funded, is favored by liberal Democrats to promote low-income housing. Conservatives have warned that it would operate as a slush fund.
