In his first major policy statement, Federal Housing Finance Agency Director Mel Watt announced a shift in housing finance policies May 13 that signals a new strategic plan for Fannie Mae and Freddie Mac, CQ Roll Call reported.
Watt said the new plan will help improve liquidity in the housing finance market, reduce taxpayer risk and attract more private capital to the market by boosting mortgage credit rather than by scaling back the government-sponsored enterprises’ dominant position in the mortgage market.
In a move to help owners whose homes are still underwater, Watt said the GSEs will “relax the payment history requirement for granting representation and warranty relief” and focus more on avoiding foreclosures, CQ Roll Call reported. However, the FHFA will not loosen eligibility requirements for the Home Affordable Refinance Program and will not reduce current loan limits, but will stop requiring a reduction in GSEs’ multifamily housing business.
Watt also said the agency will launch a Neighborhood Stabilization Initiative with Fannie, Freddie and the National Community Stabilization Trust to help stabilize communities with a significant number of foreclosed properties. A pilot program to be launched in Detroit will include pre-foreclosure and post-foreclosure strategies that include deeper loan modifications. “We believe this will be a win-win for hardest hit communities and for our conservatorship objectives,” Watt said, CQ Roll Call reported.
A principal-reduction program was not announced, but Watt said that that doesn’t mean one isn’t under consideration. “It just means that we are not ready to talk about it at this point,” he said, CQ Roll Call reported. In the past, Watt said that he supports a principal reduction program, which is why so many Republicans objected to his nomination, which resulted in a contentious confirmation process.
Watt also refrained from addressing pending legislation to overhaul the GSEs, saying that was Congress’ domain.
The policy statement is big news for lawmakers and the housing industry, which have been frustrated by a lack of communication from the FHFA since Watt became its director in January.
“It’s an important moment for him to signal to the world what he plans to do with FHFA and the enterprises and the conservatorship,” Ethan Handelman, vice president for policy and advocacy at the National Housing Conference, told CQ Roll Call.
Observers told CQ Roll Call that Watt most likely remained silent because he was spending time analyzing the issues and getting up to speed on the agency’s ongoing efforts to restore the housing market. They said he also may have been reluctant to get too far ahead of action on Capitol Hill, which has been floating a new bill to wind down the GSEs. That bill, known as Johnson-Crapo, recently floundered in its attempt to garner support.
Watt’s policy statement indicates that the FHFA is moving away from the strategy set by his predecessor, Edward J. DeMarco, who had served as acting director since 2009. DeMarco spent his tenure conserving the GSEs’ assets; critics accused him of neglecting his statutory obligation to support a housing recovery.
Even after the GSEs were flush with profits and had sent Treasury more money than the $187.5 billion they took in a taxpayer bailout, DeMarco refused to lift the suspension to funding the National Housing Trust Fund and Capital Magnet Fund, which support affordable rental housing.
Sheila Crowley, president and CEO of the National Low Income Housing Coalition, told CQ Roll Call that she is confident that Watt eventually will start funding the trusts, which is required by law.
Analysts suggested a cautious reaction to Watt’s plans for the FHFA and the GSEs, noting that his power to strengthen the housing recovery has significant limits and that the problems plaguing the mortgage market have more to do with congressional action or inaction.
“We still need housing finance reform,” Handelman told CQ Roll Call. “Just because the current legislative effort ran into some roadblocks doesn’t mean the need is not still there. Talking about whether Fannie Mae and Freddie Mac should grow or shrink in some way misses the point. They need to be reorganized.”