A former lawmaker turned housing regulator faced a grilling from his one-time colleagues over his agency’s efforts to help more people obtain a mortgage.
Mel Watt, the director of the Federal Housing Finance Agency, defended his efforts to expand credit access as overseer of Fannie Mae and Freddie Mac. He argued that the regulator was diligently working to ensure that while easing restrictions on who can access some mortgages, other factors were considered to make sure those loans could be paid off.
{mosads}But GOP lawmakers, many who spent years working with the former Democratic lawmaker, argued the FHFA’s moves could be exposing the U.S. to the same problems that led to the subprime mortgage crisis and economic collapse of 2008.
“Memories are clearly short among Washington’s ruling class because they are repeating the same mistakes that caused the 2008 financial crisis in the first place,” said Rep. Jeb Hensarling (R-Texas), chairman of the House Financial Services Committee. “I fear we are going in the complete wrong direction with your policy.”
Over four hours of testimony, GOP lawmakers accused Watt of undermining the stability of the mortgage market, exposing U.S. taxpayers to another bailout, or even ignoring legal requirements in his efforts to ease lending standards for Fannie and Freddie.
Specifically, Republicans objected to a trio of recent moves from Watt’s FHFA. They hotly criticized the FHFA’s decision to allow Fannie and Freddie to guarantee mortgages with as little as a 3 percent downpayment. Republicans also blasted a decision to delay an increase to the fees Fannie and Freddie charge to guarantee mortgages — the increase was designed to gradually reduce the outsized presence of those two government-sponsored enterprises in the housing market. And they complained about the FHFA’s decision to end a six-year suspension of payments into affordable housing trust funds.
Republicans argued that these moves again exposed people in the U.S. to the same sort of risks that were central to the housing woes that precipitated the 2008 financial crash, and also made it more difficult for Congress to complete a much-needed overhaul the nation’s mortgage market.
“These decisions bring to mind the old saying, ‘those that don’t learn from history are doomed to repeat it,’ ” said Rep. Scott Garrett (R-N.J.). “Subpar underwriting standards, taxpayer-subsidized pricing and encouraging people to buy homes that couldn’t afford them were the main causes of the last crisis; please don’t let these decisions lead to the next one.”
Democrats were quick to defend their former colleague, saying his efforts to expand access to mortgages provide a critical lifeline to some who could afford a mortgage but fail to meet specific standards like being able to save a sizable downpayment.
“A large part of our society fits into that category, and they deserve to be homeowners,” said Rep. Maxine Waters (D-Calif.), the top Democrat on the panel.
For his part, Watt staunchly defended the moves, saying any relaxed standards are carefully calibrated to avoid the pitfalls of the last housing crisis. He said that reduced downpayments for mortgages will be offset by considering other factors like credit score and debt-to-income ratio.
“These are not risky loans,” he said. “We have made that assessment based on research, not based on politics … I stand behind this decision,” he said. “If somebody can’t pay a loan, they shouldn’t be given a loan!”
He also put some pressure back on lawmakers, noting that his hands are partially tied by Congress’s inability to overhaul the housing finance system.
Watt’s testimony marked his first time appearing before the banking panel as a regulator. Before being confirmed as the FHFA’s head at the end of 2013, Watt served as a senior member of the panel.
Watt faced a contentious confirmation battle, as Republicans blocked his bid to take over the regulator. Watt only reached confirmation after Senate Democrats invoked the “nuclear option,” reworking Senate rules to allow Watt and other stalled nominees to be confirmed with a simple majority.
Watt’s previous role didn’t escape any member in attendance, as nearly every lawmaker opened his or her remarks with a warm welcome to Watt.
Rep. Patrick McHenry (R-N.C.) noted that the two still see each other frequently on flights back to the Tarheel State.
“I appreciate your kindness and friendship over the years,” he said.
And Watt showed he too keeps up with the goings-ons of his former colleagues.
“Congratulations on that beautiful baby,” Watt said, noting the birth of McHenry’s first child in August.