“The decision is a reminder of how little has changed in mortgage finance and at Fannie and Freddie despite their central role in the financial meltdown. The housing lobby—the Realtors and home builders and “affordable” housing advocates—want the government to continue to favor housing over other parts of the economy. Taxpayers bear the risk.”, The Wall Street Journal Editorial Board, April 20, 2015

Review & Outlook

Mel Watt’s Taxpayer Guarantee

The housing regulator keeps Fannie Mae large and in charge.

One lesson of the financial mania and panic of the 2000s is that bad policy choices often don’t scream out at the time they’re made. Instead they build over time, often as a series of small blunders that eventually compound into a larger disaster.

Which is all the more reason to regret Mel Watt’s Friday decision not to raise the fees that Fannie Mae  and Freddie Mac charge to guarantee home loans. Mr. Watt, who regulates the government-run mortgage giants, decided instead to maintain the status quo for the most part while mildly reducing the fees for loans to the riskiest borrowers.

Mel Watt

Mel Watt Photo: Associated Press/Jacquelyn Martin

The move is being spun as a compromise between Republicans, who wanted higher fees, and affordable housing advocates who wanted bigger fee reductions. But while most borrowers won’t notice the difference, Mr. Watt’s decision will at the margin put taxpayers on the hook for riskier home mortgages.

Upon taking the job in early 2014, Mr. Watt cancelled a fee increase planned by his predecessor, Edward DeMarco. Congress had instructed the housing regulator to increase guarantee fees to reduce taxpayer risk and to revive the private mortgage guarantee market. Mr. Watt is ignoring those Congressional wishes in a way that will keep Fannie and Freddie as the dominant forces in the secondary mortgage market due to the pricing advantages that come with their government role.

The decision is a reminder of how little has changed in mortgage finance and at Fannie and Freddie despite their central role in the financial meltdown. The housing lobby—the Realtors and home builders and “affordable” housing advocates—want the government to continue to favor housing over other parts of the economy. Taxpayers bear the risk.

Posted on April 20, 2015, in Postings. Bookmark the permalink. Leave a comment.

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