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  • Housing Finance Nominee: Expect Big Government Housing Policies Doomed to Fail

    Polaris/Newscom

    Polaris/Newscom

    President Obama nominated Representative Mel Watt (D–NC) as new chief regulator to the Federal Housing Finance Agency (FHFA), replacing the current acting director Edward DeMarco. Watt has strong support from liberals in both the House and the Senate as a longtime member of the House Financial Services Committee and advocate of federal affordable housing and homeownership subsidies.

    Liberals have mounted pressure on acting director DeMarco to resign because of his “cold indifference” to “work[ing] with families struggling to save their homes,” as Senator Elizabeth Warren (D–MA) recently stated. She was referencing DeMarco’s continued stance on regulation requirements toward principal write down on mortgages and rules prohibiting foreclosed homes from being resold to their original owners.

    DeMarco has rightly defended his position against these policy programs as protecting taxpayers and reducing any moral hazard these policies would create.

    But Watt takes a different view, and has been a leading proponent of increased intervention in housing. Notably, Watt has a 20-year record of supporting big government housing policies (ranging from home foreclosure assistance programs to down payment requirements on federally insured home mortgages). Since the housing collapse in 2007 and 2008, he has consistently remained a supporter of using Fannie Mae and Freddie Mac to extend federal interference in the housing markets.

    In 2008, Watt voted in support of, among other items, permitting the federal government’s intervention in state purchases of foreclosed homes. Moreover, he voted in support of housing legislation that increased the conforming limits for Fannie Mae and Freddie Mac (up to $801,905 for a 4-family residence in 2008 and adjusted annually), thus increasing the portion of the market that the two government-sponsored enterprises could cover, directly contributing to their expansive market share and exposing taxpayers and financial markets to even further risk.

    Since 2009, Watt has consistently voted against legislative efforts that would reduce or end continued federal mortgage bailouts, most of which would have reduced the exposure of Fannie Mae, Freddie Mac, and the Federal Housing Administration in the U.S. mortgage market. These bailout-type policies did little to heal the housing market or help homeowners.

    Watt also played a pivotal role in shaping the 2010 Dodd–Frank regulation act, particularly components that create a new, unaccountable agency to regulate consumer loans and mortgage lending practices. Regulations in Dodd–Frank hurt consumers with:

    • Higher fees to financial services,
    • Increased costs to homeowners with regulations that make mortgages and home loans costlier, and
    • Rules that will reduce liquidity and private capital available for investment in U.S. financial markets.

    Watt’s long-standing support of these federal programs to low-income and moderate-income homeowners is laudable in and of itself. It is also a completely misplaced policy to use large private institutions like Fannie and Freddie to achieve broad political ends related to the low-income and moderate-income homeownership goals he has long supported. These affordable housing goals underscored the deterioration of lending standards, leading to the recent sub-prime mortgage crisis and ultimately undermined the financial viability of Fannie Mae and Freddie Mac and the broader mortgage system.

    In short, Watt has consistently voted in favor of a large and growing government presence in the housing market, including support for the kinds of activities that precipitated and prolonged the housing crisis.

    Posted in Economics [slideshow_deploy]

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