At a recent hearing before the Senate Banking, Housing, and Urban Affairs Committee, Melvin Watt, Director of the Federal Housing Finance Agency, remarked that he did not see an immediate end to the federal government’s conservatorship of Fannie Mae and Freddie Mac. In 2008, both government-sponsored enterprises were placed into conservatorship by the federal government after suffering huge losses during the housing crisis. To keep Fannie Mae and Freddie Mac afloat, the federal government provided nearly $188 billion in aid. Watt urged Congress to engage in housing finance reform, noting “Conservatorship cannot and should not be a permanent state. The role of Congress is to define what the future state is.”
During the hearing, Watt was questioned about other hot-button issues, including principal reduction for borrowers that have no equity left in their homes. Calling it “perhaps the most” difficult issue he has faced since he took on his role at the FHFA, Watt remarked that principal reduction is “not off the table.”
In the days after the hearing, the FHFA announced a new position in policy that may provide relief to thousands of homeowners who have suffered foreclosure. On November 25, the FHFA directed Fannie Mae and Freddie Mac to sell real estate owned (REO) properties to any qualified purchaser at the properties’ fair market value. The previous policy required foreclosed homeowners that sought to buy their home back post-foreclosure to pay the entire amount of the mortgage. Fannie Mae and Freddie Mac have approximately 121,000 properties in their combined REO inventories. The FHFA cautioned, however, that certain properties may be excluded, and the revised policy will be implemented on a case-by-case basis.