On January 6th, former Congressman Mel Watt (D-NC 12th) was sworn in as the Director of the Federal Housing Finance Agency (FHFA), replacing former Acting Director Edward DeMarco. The FHFA plays a critical role in federal housing policy through its regulation of Fannie Mae (Fannie), Freddie Mac (Freddie), and the Federal Home Loan Banks (FHLBs). Advocates had been lobbying for years to replace Mr. DeMarco, a holdover from the Bush administration, and had been pushing for Director Watt’s confirmation since he was nominated by President Obama in May, 2013. Senate Republicans’ refusal to allow an up-or-down vote on Mr. Watt and others, however, led Democrats to exercise the so-called “nuclear option,” which lifted the 60-vote requirement for most presidential nominees (other than those for the Supreme Court).
We have already seen positive changes at FHFA as a result of Director Watt’s leadership. In December, 2013, even as it was clear that Mr. DeMarco would soon be replaced by Watt, FHFA announced that it would increase the fees charged by Fannie and Freddie to borrowers with down payments of less than 20% and credit scores of 680-760. Since these fees are generally passed on to borrowers, this change would have made mortgage credit more expensive for many borrowers. Prior to being sworn in, however, Director Watt announced that he would delay implementing these fee increases until he could study the issue more closely. Also encouraging is Director Watt’s appointment of Eric Stein as his acting chief-of-staff. Prior to joining FHFA, Mr. Stein spent 17 years at the Center for Responsible Lending (CRL) and Self-Help.
Most importantly, Director Watt’s replacement of Mr. DeMarco makes possible a number of housing advocates’ most significant goals, which could not be accomplished under Mr. DeMarco.
Chief among these is allowing principal reductions on Fannie and Freddie mortgages. Under Mr. DeMarco, FHFA refused to allow principal reductions on Fannie- and Freddie-owned loans, taking away what is generally the most effective tool for helping distressed homeowners get back on their feet. Housing advocates are now optimistic that, under Director Watt, FHFA will reconsider this position and open the door to smart principal reduction that will help distressed homeowners with Fannie or Freddie mortgages to stay in their homes.
Language access is another important issue that we hope FHFA will be more open to addressing under Director Watt’s leadership. FHFA could address a number of language access issues with respect to Fannie- and Freddie-owned mortgages, such as requiring servicers to provide adequate translation services for limited-English-proficiency (LEP) borrowers and to accept loan modification documents in languages other than English. NHRC will push FHFA to address the language access shortcomings that have plagued Fannie and Freddie.
More generally, NHRC is optimistic that Director Watt will be more open to embedding housing counseling into Fannie’s and Freddie’s operations. There are a number of ways this can happen, such as by treating housing counseling as a compensating factor for borrowers who do not meet the (absurdly) high standards set by Fannie and Freddie. According to the Center for American Progress, the average borrower approved for a Fannie or Freddie mortgage has a FICO score of 755 and puts down 20 percent. These standards are high for many low- and moderate-income borrowers and force well-qualified borrowers into more expensive loan products. Housing counseling has been demonstrated to be an effective tool for preparing people for homeownership and should be embedded as a tool for expanding the pool of borrowers who receive Fannie or Freddie mortgages.
While the appointment of Director Watt is certainly a victory for housing advocates that should be celebrated, going forward it will be important to continue to push FHFA to pursue policies that will benefit our clients. NHRC will continue to work with other housing advocates to ensure that our priorities are addressed and is looking forward to having a strong working relationship with Director Watt and FHFA.