Delivering his first speech on May 13 since becoming director of the Federal Housing Finance Agency (FHFA) in January, Mel Watt outlined a broad shift in housing policy.
Instead of shrinking the role of the federal government in the mortgage market, Watt signaled that FHFA will increase liquidity in the market, pointing to policy changes that will allow banks to expand access to mortgages to more borrowers.
“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,” said Watt, speaking at the Brooking Institution, a liberal think tank. ”This decision is motivated by concerns about how such a reduction could adversely impact the current health of the housing finance market.”
Watt, a former Democratic congressman from North Carolina, has shifted course at the agency since replacing Edward J. DeMarco, a career bureaucrat appointed by President George W. Bush in 2009. Watt announced a number of changes for Fannie and Freddie, changes that will expand their role in mortgage finance, rather than shrinking it.
In his speech, Watt did not weigh in on the various proposals in Congress to overhaul housing finance. Instead, Watt announced three policy shifts for Fannie and Freddie, the government-run companies that help guarantee 60 percent of all new loans.
He said FHFA was scrapping a proposal released last year by DeMarco that would have lowered the loan limits on mortgages back by Fannie and Freddie. Current rules limit those mortgages to $417,000 in most of the country and as high as $625,000 in high-coast coastal areas.
He also announced a new foreclosure relief program, the “Neighborhood Stabilization Initiative,” targeting the hardest-hit communities. A pilot program will kick-off in Detroit. “We believe this will be a win-win for hardest hit communities and for our conservatorship objectives,” Watt said.
Fannie Mae and Freddie Mac don’t make loans; they buy loans originated by banks and sell the securities to investors with a guarantee against losses. They were placed under conservatorship in 2008 as the housing crisis unfolded and have been governed by FHFA since then. The FHFA regulates loan giants Fannie Mae and Freddie Mac.
Fannie and Freddie received $187 billion in taxpayer money after they were seized by the Treasury in 2008 to prevent their collapse. Since then, they have stabilized their loan portfolio and paid back about $200 billion in dividends to the federal government.