Federal Housing Finance Agency Director Mel Watt announced his plans to change some of the housing finance industry lending standards to expand the credit box, and the chairman of the House Financial Services Committee is sounding a warning Watt may be looking at going a bridge too far.
U.S. Rep. Jeb Hensarling, R-Texas, responded to remarks Watt made Friday at the National Association’s convention and expo on proposed changed to the housing finance industry lending standards.
“As I have previously voiced to the FHFA, I am extremely concerned about Director Watt’s efforts to force taxpayers to back high-risk mortgages with ultra-low down payments as little as three percent. Such loans are inherently risky because the borrower has almost no financial cushion against a personal or economic downturn, vastly increasing the likelihood they will walk away from the loan once it gets significantly underwater,” Hensarling said.
Watt’s remarks on Friday to the NAR come just a couple weeks after Watt and U.S. Secretary of Housing and Urban Development Julian Castro spoke at the Mortgage Bankers Association Annual Convention & Expo, where they outlined changes that would reduce confusion and risks for lenders, including clarifying the Representations and Warranty Framework to help reduce repurchases.
“Since their spectacular collapse in 2008, Fannie Mae and Freddie Mac have continued to exist only through the massive financial support of taxpayers and a strict focus on sound underwriting,” Hensarling said. “To abandon that focus now is an invitation by government for industry to return slipshod and dangerous practices that caused the mortgage meltdown in the first place and wrecked our economy.
“As Director Watt even correctly noted in his speech, the number one statutory obligation of the FHFA is to ensure the safety and soundness of the Fannie Mae and Freddie Mac. Clearly, this initiative is directly contrary to that mission, and must be rejected,” he said.
Fannie Mae CEO Timothy Mayopoulos said the government-sponsored enterprise will soon begin offering a 97% loan-to-value mortgage.
And Freddie Mac is not too far behind with the same announcement.