Senator Elizabeth Warren thoroughly smacks Melvin Watt, the new director of the Federal Housing Finance Agency (FHFA), about principal reduction for homeowners, at a Senate Banking Committee hearing on November 19, 2014.
As the Charlotte Observer explained: “The agency oversees mortgage finance titans Fannie Mae and Freddie Mac, both in government receivership since September 2008 at the start of the financial crisis. Warren contends Watt and his agency haven’t pushed for a reduction on the balance owed to mortgage lenders – called a principal reduction – on millions of loans placed with Fannie and Freddie that are more expensive than the home is now worth. That’s called being underwater on the mortgage.”
Warren’s contention was that the FHFA has failed to assist even one family since going into receivership.
This exchange from the hearing illustrates her point and Watt’s response:
ELIZABETH WARREN: The Treasury Department has found that principal reductions could save Fannie and Freddie nearly $4 billion and help half a million homeowners stay in their home. It has been six years since Congress created FHFA and in all that time your agency has never, not once permitted a family to reduce its principal mortgage through Fannie or Freddie.
I’ve asked about this repeatedly and you’ve said you’d look into allowing Fannie and Freddie to engage in principal reduction; you said it again today,. 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. So I want to know why this hasn’t been a priority for you. The data are there.
MELVIN WATT: It’s probably an overstatement to say it’s not been a priority,” Watt stammered. “It’s just a very difficult issue. The reason it is difficult is because we are looking for exactly what you said – a win-win situation. We have to do this in a way that is responsible, otherwise we just reduce principal for everybody across the board…is not what anybody I think is advocating for, so then we have to decide what is a responsible way to do that…
You can watch the exchange, below: