Wall Street Journal
FHFA Director Says Access to Housing Will Be Improved
By JOE LIGHT
Updated Jan. 27, 2015 5:19 p.m. ET
A top housing regulator, in a tense four-hour hearing before Congress on Tuesday, defended a series of controversial decisions made in his first year on the job that the regulator believes will improve access to housing but critics say could increase taxpayer risk.
Mel Watt, director of the Federal Housing Finance Agency, Fannie Mae and Freddie Mac ’s regulator, was called to the hearing after he directed the mortgage giants in December to begin sending a portion of their profits to the affordable housing trust funds.
The two funds, one administered by the Treasury Department and one by the Department of Housing and Urban Development, allow states and other bodies to get funds to build low-income rental housing and rehabilitate existing housing.
The provision to send the funds was created as part of a larger bill meant to stem the housing crisis in 2008, but payments were suspended almost immediately after it was passed.
Jeb Hensarling (R., Texas), chairman of the House Financial Services Committee, said that by restoring the payments to the trust funds, along with other decisions Mr. Watt has made in the past year, “Washington appears to be rolling the dice again.”
At the hearing, Mr. Watt said he believed he was following his legal mandate by allowing contributions to the funds as the health of Fannie and Freddie has recovered.
But some Republican congressmen expressed consternation that the funding was happening even as Fannie and Freddie face restrictions on their abilities to build up a capital reserve.
Democrats generally said they supported sending money to the funds and many other moves Mr. Watt has made. “You have taken important steps to ensure that our housing market remains affordable and works for everyone,” said Rep. Maxine Waters (D., Calif.) to Mr. Watt, saying that the decision to send money would help housing affordability.
At the hearing, Mr. Watt also was asked about the FHFA’s decision on whether or not to change the fees that Fannie and Freddie charge by the end of March, a decision that would directly affect borrowers’ mortgage costs. The decision is widely expected to be made in conjunction with setting capital requirements for private-mortgage insurers.
He said that the FHFA hasn’t yet decided whether or how to change the fees.
Mr. Watt did give some indication that the FHFA is considering allowing the reduction of the principal balance of some loans that Fannie and Freddie back. Principal reduction is seen as a powerful tool to help some homeowners stay in their homes, but raises alarm among some who fear that it could result in taxpayer losses.
“What we’re trying to do with principal reduction is find a place where it is beneficial to borrowers” but doesn’t hurt Fannie and Freddie, said Mr. Watt. “There are some instances where that is the case,” he said at the hearing. “When we find that niche, that is when we’re going to make a decision about this.”
Some congress members also questioned a decision by Mr. Watt last year to allow Fannie and Freddie to back loans with down payments of as little as 3%, down from the prior 5% minimum.
The questioning of Mr. Watt came against the backdrop of a legislative housing-finance overhaul effort that has largely stalled. Now, lawmakers and regulators grapple with the possibility that the uncertainty surrounding the companies’ futures could persist for years.
Several Republican congressmen said that they were concerned about Fannie’s and Freddie’s low levels of capital, though an agreement between the companies and the U.S. Treasury Department in recent years has effectively prevented them from building a buffer. In the last couple months, a growing drumbeat of mostly liberal advocates has called for the recapitalization of the companies.
Mr. Hensarling in recent days has said that he will lead a renewed push to pass broad housing-finance overhaul legislation. In 2013, Mr. Hensarling sponsored a plan to wind down Fannie and Freddie and largely privatize the housing-finance system, though the bill never received broad enough support to move forward.
A separate, more modest bipartisan plan was passed by the Senate banking committee last May, but never achieved enough backing to earn a vote on the Senate floor.
Even though overhauling the housing finance system has Mr. Hensarling’s attention and that of the White House, incoming Senate banking committee chairman Richard Shelby (R., Ala.) hasn’t yet expressed interest in re-tackling the issue in 2015, and progress this year remains a long shot, according to most analysts.
At the hearing, Rep. Ed Royce (R., Calif.) said he would introduce a bill to prevent Fannie and Freddie from sending money to the affordable housing trust funds.
Barring the passage of that or another bill, Fannie and Freddie will make payments equal to 0.042% of the unpaid principal balance of mortgages they purchase in the previous year.
If not for the suspension, the companies would have paid about $500 million into the funds in 2014. With Mr. Watt’s decision, the companies aren’t expected to make their first payments until early 2016.
Some Republicans see the funds as loosely administered “slush” funds that benefit left-leaning affordable housing groups.
On the other hand, advocates especially value the funds because they aren’t subject to annual appropriations by Congress. Other sources of affordable housing money, such as the Department of Housing and Urban Development, have come under pressure in recent years.