Mel Watt, the director of the Federal Housing Finance Agency (FHFA), defended his efforts to expand credit access as overseer of Fannie Mae and Freddie Mac in a heated, four-hour hearing before Congress Tuesday.
He argued that the while the FHFA has taken several strides to do so, the regulator also has to be sure there are enough safeguards in place to make the loans as safe as those with larger down payments.
However, GOP lawmakers fear the FHFA’s recent moves could lead the United States to the same problems that led to the financial crisis of 2008.
“Memories are clearly short among Washington’s ruling class because they are repeating the same mistakes that caused the 2008 financial crisis in the first place,” Jeb Hensarling, R-Texas, said. “Contrary to the fable told by the left, the root cause of the financial crisis was not deregulation but dumb regulation. Regulations and statutes that either incented or mandated financial institutions to loan money to people to buy homes they ultimately could not afford to keep. Exhibit one, Fannie and Freddie’s affordable housing goals. 70% of all troubled mortgages were backstopped by Fannie, Freddie and other federal agencies.
Meanwhile, Democrats were quick to defend their former colleague and said that efforts to lower loan-to-value ratios and fund affordable housing funds are moves in the right direction.
“With Fannie Mae and Freddie Mac now having paid the government $225 billion dollars – which is $38 billion dollars more than the Treasury invested during the crisis – I think it’s fair to say that our actions to prevent a total collapse of our housing market has been a resounding success. If we closed the GSEs without putting in place a viable alternative – as my Republican colleagues would do – we would likely re-enter a recession,” Rep. Maxine Waters, D-Calif, said. “And Director Watt, your actions demonstrate that you are fulfilling your statutory mandate to preserve a liquid, competitive and national housing market.
Watt was called to testify before the House Financial Services Committee at a hearing entitled “Sustainable Housing Finance” shortly after he directed the mortgage giants to back mortgages with down payments as low as 3%.
Click here to read Watt’s full statement.