More than four months after being sworn in as the country’s top housing regulator, Mel Watt today gave the firstpublic indication of how he views the future of Fannie Mae and Freddie Mac, the mortgage giants he oversees. In a break with his predecessor, Edward DeMarco, Watt seems to place more emphasis on creating a robust mortgage market, and less on reducing Fannie and Freddie’s role in home lending.
Mortgages are still hard to get for people who don’t have great credit in part because many lenders use even stricter underwriting standards than Fannie’s and Freddie’s. Lenders are being extra careful to avoid being forced to buy back loans that sour down the line. That means there are borrowers that Fannie and Freddie think are good risks but who still can’t get a loan.
To try to address lender concerns, Watt is loosening the rules that Fannie and Freddie use to force the buybacks. For example, a lender will no longer be on the hook for a mortgage after three years if the borrower isn’t late on more than two monthly payments during that time. The Mortgage Bankers Association praised the move, saying it “should help ease some of those concerns by providing a clearer roadmap.”
DeMarco proposed reducing the size of mortgages that Fannie and Freddie would guarantee on the theory that without being able to rely on Fannie and Freddie’s backstop, the private sector would need to take on more risks on its own.
Watt says he’s withdrawing that proposal because of “concerns about how such a reduction could adversely impact the health of the current housing finance market.” In essence, he’s worried that without Fannie and Freddie, even more people would be locked out of the mortgage market—and for now, he says propping up the market is more important that reducing the government’s role in housing.
