This afternoon, the U.S. Senate confirmed Democratic Rep. Mel Watt as the country's top housing regulator, making him one of the first beneficiaries of new rules for approving presidential nominations. As the new director of the Federal Housing Finance Agency, Watt will be responsible for overseeing mortgage giants Fannie Mae and Freddie Mac — which together backed more than half of all home loans made last year — as their regulator and conservator.
Though the position doesn't often make headlines, the FHFA director is one of the most important economic officials in the country, with direct control of more than $5 trillion in housing assets and influence over the entire U.S. mortgage market. With his newfound authority, Watt has the rare opportunity to enact immediate reforms that can improve millions of lives without having to wait for a gridlocked Congress to act.
To be sure, the housing market has been on the road to recovery for more than a year, and today Fannie and Freddie are both highly profitable as a result. But millions of families are not seeing the upside of that recovery. Renters are seeing their housing costs skyrocket as wages stagnate. Working families looking to buy their first homes can't get an affordable mortgage in today's tight lending environment. And despite recent gains in home prices, millions of homeowners are still "underwater," owing more on their mortgages than their homes are worth.
With those persistent problems in mind, here are four policies that should be at the top of Watt's agenda at FHFA.
1) Reverse plans to scale back government support to the rental market: When most people think of Fannie Mae and Freddie Mac, the first thing that comes to mind is homeownership. But the companies also purchase and guarantee multifamily mortgages, which finance buildings with five or more apartments. For decades, Fannie's and Freddie's multifamily businesses have been a crucial source of capital for affordable rental housing, especially in low-income neighborhoods, rural communities and other segments of the market that are not well served by purely private sources of capital.
Over the past two years, FHFA has made it a strategic priority to scale back these businesses, despite clear benefits to both taxpayers and America's renters. The agency ordered both companies to reduce their multifamily businesses by 10 percent last year and have released plans to mandate further reductions this year. To date, FHFA has provided very little rationale for this reduction, and its latest proposal was met by nearly unanimous pushback from consumer groups, industry representatives and other stakeholders.
2) Reaffirm FHFA's role of promoting equitable access to affordable mortgage credit: When Congress established FHFA in 2008, one of the agency's directives was to support "mortgages on housing for low- and moderate-income families." But FHFA has gradually moved away from that aspect of its mission.
For example, under the Housing and Economic Recovery Act of 2008, FHFA was ordered to develop regulatory rules to ensure that Fannie and Freddie equitably serve all creditworthy borrowers. More than five years later, the rule still has not been finalized. Meanwhile, the agency in 2012 proposed watering down the so-called "affordable housing goals," which are specific targets for Fannie- and Freddie-backed lending to low- and very low-income communities.
3) Enforce Fannie's and Freddie's mandatory contributions to affordable rental housing: The 2008 law also created the Housing Trust Fund and the Capital Magnet Fund, two programs that help promote affordable rental housing for low-income families. As originally envisioned, both would receive funding through fees on Fannie's and Freddie's ongoing business, but the FHFA suspended those obligations when Fannie and Freddie were put into conservatorship.