November 20, 2014
“You’ve been in office for nearly a year now, and you haven’t helped a single family, not even one.”
Senator Elizabeth Warren spoke the plain truth to Mel Watt, the head of the Federal Housing Finance Authority at a hearing before the Senate Banking Committee this week.
It was Watt’s first appearance before the committee since taking over as head of the agency over a year ago. Many homeowners were hopeful when Watt was appointed that there would finally be the opportunity to seek principal reductions on loans backed by Fannie and Freddie. But those principal reductions never materialized.
“Chairman Watt, you’ve had a year to do that. You’ve known for five years what the problem is,” Warren said, referring to 5.4 million borrowers who could possibly save their homes from impending foreclosure if they could get meaningful principal reductions. While most communities saw a drop in home values of 30% – 35%, some of the hardest hit communities in Florida, California and Nevada saw home values fall 65%. This was especially true in communities with a high percentage of retirees.
Watt called principal reductions “unlikely.”
The resistance to principal reductions most often makes no financial sense because loans foreclosed by Fannie and Freddie often re-sell for less than 25% of the loan balance. Principal reductions could save millions of dollars and help restore communities. In many counties, Fannie owns the largest number of single-family homes and also has the highest number of abandoned homes.
Watt was also criticized for a plan that will be introduced in December that would allow homeowners to get a government-backed loan with a down payment of only 3%. Watt argued that a down payment of less than 20% does not necessarily mean that the borrower will be more likely to default on a loan. He offered no support for that assertion.
Watt has recently sought to reassure banks that there will not be strict penalties for fraudulent loans.
There appears to be no meaningful difference between Mel Watt and his predecessor, Edward DeMarco.