Mel Watt, President Obama’s nominee for director of the Federal Housing Finance Agency, pushed government programs to help welfare recipients buy homes during the creation of the subprime mortgage bubble.
Watt, a 20-year Member of Congress from North Carolina’s 12th district, also had a hand in programs allowing borrowers with poor credit to buy homes with no down payment. The American financial system was subsequently destroyed when millions of bad borrowers defaulted on their loans, setting off a market crash that wiped out nearly 40 percent of the net worth of Americans.
In 2002, Watt teamed up with Freddie Mac and Fannie Mae, Bank of America, BB&T, and UJAMMA Inc., to announce Pathways to Homeownership, a pilot initiative designed to give home loans to welfare recipients.
A press release from Watt’s campaign office in October 2002 said that the loans to the welfare recipients would require “as little as $1,000 of the down payment to come from their own funds” and that the city of Charlotte would help borrowers obtain a “down payment subsidy” to cover the rest of the 3% down payment.
If approved to head up Federal Housing Finance Agency (FHFA), Watt will be regulating the very government agencies whose rules he negated in 2003.
Watt, alongside then-Democratic Massachusetts Rep. Barney Frank, blocked Bush Administration efforts to reduce Fannie and Freddie’s overexposure to subprime loans. “I don’t see much other than a shell game going on here, moving something from one agency to another and in the process weakening the bargaining power of poorer families and their ability to get affordable housing,” Watt said in a banking committee hearing, downplaying the risks inherent in pushing.
In 2007, a full year after the real estate market peaked and began to plummet under the weight of millions of mortgage defaults, Watt and Frank co-sponsored a bill forcing Fannie and Freddie to meet even higher quotas for affordable lending and investing in an “Affordable Housing Fund” for inner city communities.
Watt’s deregulation of Fannie and Freddie came after the government-sponsored enterprises spent billions in his congressional district. “Freddie Mac has purchased $9.5 billion in mortgages made to an estimated 82,000 Charlotte-area residents,” Watt’s staff announced in 2002.
Many of those risky loans ultimately led to the housing bubble and financial crisis. Charlotte was among the hardest-hit areas of the country. The 6.09 percent foreclosure rate for the North Carolina city was more than double the national average of 2.85 percent, according to the Charlotte Observer. CNN.com listed Charlotte number five of the hardest hit foreclosure hotspots in America in 2011.