President Obama’s new most powerful man in housing is already planning big changes, The Wall Street Journal reports.
Rep. Mel Watt was sworn in Monday afternoon as the new director of the Federal Housing Finance Agency (FHFA). His nomination was originally blocked by a Republican filibuster because of concerns that Watt’s political involvement and close ties with the administration would be a detriment to the mission of the FHFA. When Senate Democrats changed the rules using the “nuclear option,” however, Watt was easily confirmed.
Weeks before he was sworn in, Watt emailed reporters the first surprising policy change he plans to make. Immediately after taking office, he intends to delay FHFA rate hikes “until such time as I have had the opportunity to evaluate fully the rationale for the plan,” according to the Journal. The rate hikes, which were announced last month, were intended to give private companies a better chance to compete in the housing market.
Watt’s actions to delay the rate hikes will slow down the return of private capital to the market and would further entrench the government’s role in housing, Edward Pinto, resident fellow at the American Enterprise Institute, told The Daily Caller.
“The result will be an increase in risky lending and greater reliance on government guarantees,” Pinto said. “This is not good news for America’s homeowners, as home equity is the primary asset of most families.”
Furthermore, Watt has shown a strong preference for government-driven policies that encourage homeownership at taxpayers’ risk.
“Mel Watt’s confirmation as FHFA director poses great risk for the nation’s homeowners,” said Pinto. “Like the HUD secretaries before him, Mr. Watt has broad and nearly unfettered authority to impose risky lending standards on Fannie and Freddie pursuant to the congressionally-mandated affordable housing goals. All evidence indicates that Mr. Watt remains a strong supporter of these mandates notwithstanding general agreement that they were misguided.”
Obama claimed in a December statement that Watt would be “the right regulator to make sure the kind of crisis we just went through never happens again.” But Watt had a significant role in causing the last financial crisis.
Watt advocated for government programs that made it easier for prospective buyers with poor credit ratings to buy homes. He also pushed to increase loans from government-sponsored-enterprise (GSE) Freddie Mac in a “Pathways to Homeownership” program.
Watt was also one of two congressmen who led the effort to block President George W. Bush’s 2003 reforms that would have limited the liability of Fannie Mae and Freddie Mac. At the time, his partner in the effort, Rep. Barney Frank, told The New York Times, “These two entities — Fannie Mae and Freddie Mac — are not facing any kind of financial crisis.”
But five years later, these GSEs collapsed, bankrupt. They were taken over by the federal government in what was described by the Washington Post as “one of the most sweeping government interventions in private financial markets in decades.” Put into conservatorship by the Department of the Treasury and the FHFA, Fannie and Freddie ended up costing taxpayers over $100 billion.