Warren: Housing chief moving too slowly on mortgage reform

Sen. Elizabeth Warren (D-Mass.) is blasting the nation’s top housing regulator for failing to move forward on a plan to help struggling homeowners lower the amount they owe on their mortgages.

Warren bluntly asked Mel Watt, director of the Federal Housing Finance Agency (FHFA), why he has not acted Wednesday, citing studies she said showed reductions in loan principal could financially help both homeowners and mortgage giants Fannie Mae and Freddie Mac.

{mosads}”I’ve asked about this repeatedly and you said you’d look into allowing Fannie and Freddie to engage in principal reduction, you said it again today,” Warren said at a Senate Banking Committee hearing in tense exchange.

“You’ve been in office for nearly a year now and you haven’t helped a single family, not even one, by agreeing to a principal reduction,” she continued. “I want to know why this has not been a priority for you.”

Watt told Warren that she was overstating his lack of attention to the policy calling it “a very difficult issue.”

He said the agency is seeking a balance where it can bolster both sides of the equation — provide help for both homeowners who are underwater on their mortgages and Fannie and Freddie, which were taken under government control in 2008. 

“So, we have to do this in a way that is responsible, otherwise we just reduce principal for everybody across the board and that is not what anybody is advocating for,” he said.

Warren though was unmoved, interrupting Watt to press him on why he hasn’t made progress since he assumed his post in January despite calls for his agency to start principal reductions.

“People have lost their homes in the last year and every day that you delay more families lose their homes,” she said.

Warren said there are still 5.4 million families who are underwater and could use some help paying their mortgages. 

“So I want to know, when are you going to have an answer on this,” she asked. 

Watt said there should be a new policy coming soon and “it won’t be as long as it has been.”

“I think we’re getting closer,” he added.

Watt said the agency is taking other actions that could help some borrowers get principal reductions, but Warren countered that the other proposals were not enough.

In 2013, a Congressional Budget Office study showed that a modest principal reduction plan could help 1.2 million underwater homeowners, prevent 43,000 defaults and save Fannie and Freddie about $2.8 billion, she said.

She added that a Treasury study found that $4 billion could be saved and it could help 500,000 homeowners stay in their homes.

When Watt took the job in January there were renewed hopes from some Democrats, amid concerns from Republicans, that Watt would bow to pressure from the Obama administration to offer principal reductions to some homeowners.

But, so far, Watt has taken a methodical approach to reviewing FHFA’s policies, including whether it act on that issue.

His predecessor, Edward DeMarco butted heads with the White House over the policy. During his more than 4-year tenure, he refused to implement a principal reduction policy arguing that while it seemed to have some possible benefits for Fannie and Freddie the risks were too great.

He had said that the policy could put taxpayers at greater risk, there was uncertainty about the costs of implementing the program and that it would likely only help a small fraction of those households who owe more than their mortgages.