WASHINGTON (11/20/14)--Members of the Senate Banking Committee inquired about housing finance reform, increased access to credit and the future of Fannie Mae and Freddie Mac during a hearing Wednesday.
Federal Housing Finance Agency (FHFA) Director Mel Watt, the sole witness, made his first appearance before the committee since being named to the agency's top position last December.
Sen. Dean Heller (R-Nev.) queried Watt about his position on housing finance reform. He asked if Watt was prepared to work with Congress on a solution to existing problems, which Heller said included the end of government-sponsored enterprises (GSEs) Fannie and Freddie.
"There are quite a few members of this committee that are passionate about housing finance reform, and I'm included in that group. I think most have recognized that the current models of Fannie and Freddie cannot remain. We must reduce the risk American taxpayers currently face," Heller said. "We've recently heard [U.S. Department of Housing and Urban Development] Secretary Julian Castro call for housing finance reform, but I haven't heard anything on this subject from Director Watt."
Watt said that the FHFA's role is to oversee the day-to-day operations of the housing market, which is what is allowed by statute, as opposed to making policy decisions for the future.
"It is Congress's role to tell us what the future of GSE reform is. We have cooperated fully in terms of being a resource to the committees and all proposals in both the House and the Senate," Watt said. "But if the committee is expecting me to have a position on what the future of housing and GSE reform, they will be sorely disappointed."
Sen. Elizabeth Warren (D-Mass.) questioned why the FHFA has been slow to adopt reducing the loan principal for underwater homeowners.
"Principal reduction is often a win-win that both helps Fannie and Freddie and helps a family," she said. "The Treasury department has found that principal reductions could save Fannie and Freddie nearly $4 billion and help half a million homeowners stay in their home. It has been six years since Congress created FHFA, and in all that time your agency has never, not once, permitted a family to reduce its principal mortgage through Fannie or Freddie."
Watt responded by saying the agency was still looking into ways to "responsibly" reduce principals, but in the meantime, the agency has been able to give homeowners flexibility under the Neighborhood Stabilization Act, which assists with purchase and redevelopment of foreclosed and abandoned homes and residential properties.
Watt's testimony included an update on the financial performance of Fannie and Freddie: