President Obama recently nominated Rep. Mel Watt (D-NC) to become the director of the Federal Housing Finance Agency, which regulates government mortgage giants Fannie Mae and Freddie Mac and the Federal Home Loan Bank system. Already, the conservative lie about the causes of the housing crisis is becoming a key part of the campaign to discredit Watt.
The newest bogus claim, embodied most clearly in this Daily Caller article, is that Watt helped cause the housing crisis because he promoted low down-payment lending and advocated for policies to close the homeownership gap among minorities and low-income families.
Additionally, the article criticizes Watt for co-sponsoring legislation that pushed Fannie and Freddie to meet higher quotas for affordable lending and to invest in an affordable housing fund, and it accuses him of “racial demagoguery” for speaking about the problem of discrimination in mortgage lending.
The fact is neither lending to low-income individuals nor low-down-payment loans caused the housing crisis. Rather the true causes were predatory mortgage products and out-of-control mortgage securitization. These predatory loans were deceptively marketed to borrowers, typically contained multiple risky features in the same loan, and were rarely used by first time homebuyers. In contrast, the low down payment programs that Watt advocated for provided a safe and sustainable alternative to those predatory loans; apart from the down-payment, the loans were carefully underwritten.
The argument that Fannie and Freddie’s affordable housing goals contributed to the crisis has been thoroughly debunked by virtually every study that has examined this question, from the Federal Reserve Board of Governors to the Financial Crisis Inquiry Commission.
The Housing Trust Fund that Watt co-sponsored was designed to address the well-recognized severe affordable housing shortage; a similar housing trust fund was later established on a bipartisan basis (what’s more, the bill in question also contained numerous steps to strengthen oversight of Fannie Mae and Freddie Mac).
Finally, Watt’s charge of discrimination in lending is true: minorities are denied for loans more frequently and bear higher costs of borrowing, even when controlling for factors such as credit history. Communities of color also were targeted by predatory lenders. These disparities have an effect on the ability of minority households to access homeownership, build wealth, and get ahead.
The truth is that, rather than advocating for policies that caused the crisis, Watt pushed for policies that would have prevented it: an end to predatory lending and broad access to the safe and affordable credit that makes sustainable homeownership possible. He is precisely the type of leader who can help FHFA shape the safe and accessible housing finance system of the future.
Our guest blogger is David Sanchez, a special assistant with the economic policy team at the Center for American Progress Action Fund.