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New Finance Agency Chief Expected To Increase Mortgage Accessibility

Sworn into office Monday, the new Finance Agency Chief has alluded to the possibility of loosening tight credit standards that are suffocating prospective homebuyers. Mel Watt, who is now tasked with running the agency that regulates both Fannie Mae and Freddie Mac, hinted that upcoming changes to the U.S. housing policy might place an emphasis on ensuring access to credit. The recent announcement provides a glimmer of hope to those who have been unable to acquire a loan under restructured practices. With the recent promotion, Watt will serve as the first permanent director of the Federal Housing Administration Agency in four years.

Watt’s role as the new Finance Agency Chief will have a significant impact on the trajectory of the current recovery.

“Today’s housing finance system is one of the keys to our economic recovery,” Watt said in a statement after being sworn in. He said he hoped to “develop a strong foundation for moving this system forward for the benefit of all Americans at this critical point in our nation’s history.”

Prior to taking office, Watt publicly announced his intentions to ease mortgage credit availability. Most notably, Watt acknowledged that he would attempt to delay a series of Fannie Mae and Freddie Mac loan-fee hikes that were scheduled for the earlier part of this year. Both industry and consumer groups agree that the delay will facilitate cheaper borrowing costs.

Jaret Seiberg, a senior policy analyst at Guggenheim Securities, said there were high hopes that Watt would “focus on expanding the mortgage credit box.”

“The open question is how effective he will be and how strongly he will endorse that role,” he said. “The first few months are likely to tell the market a lot about his tenure.”

With his recent promotion; Watt has exclusive authority to exercise his power over both Fannie Mae and Freddie Mac, the two most influential companies associated with the U.S. housing finance system. These two entities are known for buying mortgages from lenders and packaging them into securities on which they guarantee payments of principal and interest. They have both combined to account for nearly 60 percent of all U.S. home loans. As a result, their efforts serve to fund hundreds of banks on a national level. Watt, therefore, is now responsible for the interactions that are to occur between these institutions in the future. Subsequently, his actions will be directly correlated to the amount of credit consumers can access.

Despite steps taken by his predecessor to prohibit the slashing of mortgage balances for unqualified borrowers, Watt is expected to consider the prospects of a targeted principal forgiveness program.

According to analysts familiar with the mortgage industry, Watt plans to expand federal programs that allow borrowers with loans backed by Fannie and Freddie to lower their interest rates, even if they owe more on their loans than the mortgage is currently worth.

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