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.

Total outstanding student loan debt has hit record levels, recently topping $1 trillion. This can translate into a heavy financial burden on young graduates, which in turn has a big impact on the economy. The Progressive Policy Institute calculates that people under the age of 30 are spending $43.5 billion every year paying back student loans, which is about 7 percent of their total annual income.

What else could that money go to besides student loans? PPI added up the numbers to find out:

The burden from student debt has been growing: the Federal Reserve found that the number of borrowers and the average amount of debt per borrower has risen by 70 percent since 2004.

The number of new homes that graduates could buy instead of paying back their loans is particularly striking given that homeownership rates have cratered for Americans under 40. This is partly due to the fact that their income has to go to paying down debt and therefore can’t be spent on buying a new house. It also means that they often have a high debt-to-income ratio and lack the money for a large down payment, excluding them from taking out many mortgages.

Giving government-sponsored mortgage giants Fannie Mae and Freddie Mac the authority to allow homeowners to reduce the amount of principal they owe on their mortgages would save taxpayers billions of dollars while reducing the number of foreclosures and delinquencies, according to a new report from the nonpartisan Congressional Budget Office. The report was done at the request of 45 House Democrats who have pushed the Federal Housing Finance Agency (FHFA) to provide Fannie and Freddie with that authority.

The CBO analyzed three separate scenarios for principal reductions under the Home Affordable Modification Program (HAMP), which largely failed to provide sufficient help to homeowners after it was instituted by President Obama in 2009. Any of those scenarios, the report found, would save taxpayers billions of dollars and avert unnecessary defaults and foreclosures.

Acting FHFA director Edward DeMarco has been the primary foil to the institution of principal reductions, as he has argued that they wouldn’t be effective, that they wouldn’t be fair, and that they would be giveaways to big banks. Multiple reports, however, have shown that principal reductions would be the most effective way to help homeowners while also shielding taxpayers. The effort to give Fannie and Freddie the authority to reduce principal got a shot in the arm Wednesday when President Obama nominated North Carolina Rep. Mel Watt (D) to replace DeMarco at FHFA. Watt is an outspoken proponent of principal reductions.

The three scenarios CBO tested would not have a tremendous effect on the housing market, as it would produce fewer than 600,000 modifications and avert fewer than 100,000 defaults. Still, it shows that principal reductions would be a smart policy for both taxpayers and struggling homeowners, and a more ambitious plan could have an even bigger effect. “”Policies with broader eligibility than those CBO analyzed could have larger effects,” the report said.

Today, President Obama announced that he will nominate Rep. Mel Watt (D-NC) to be the director of the Federal Housing Finance Agency (FHFA), the agency that regulates housing giants Fannie Mae and Freddie Mac.

As a veteran of the House Financial Services committee, Watt is well-qualified to lead the agency. Among his accomplishments on the committee is the spearheading of one of the earliest federal efforts to combat predatory lending, and had Watt’s bill passed, it could have prevented some of the worst practices that led to the housing crisis.

Watt’s nomination comes at a crucial time for the agency, as the companies it regulates currently guarantee approximately two-thirds of new mortgages. FHFA is currently run by Ed DeMarco, an unelected and unconfirmed civil servant who is using his virtually unlimited powers to reshape housing finance in America. These decisions will impact nearly all American families whether they own their home, hope to become homeowners someday, or are simply seeking affordable rental options.

Yet instead of using Watt’s nomination to begin an open discussion about the future of housing finance, the right is already signaling they will gin up a misinformation campaign in an attempt to derail his nomination.

The first salvo appeared in a blog post from the Wall Street Journal bluntly called “Obama, Housing, and Blacks.” (Is it a coincidence that this piece was published on the same day that the Administration nominated Watt, who is African-American, and was once a chairman of the Congressional Black Caucus?)

The Journal piece begins by referencing an Urban Institute report describing the massive loss of wealth by Hispanic and black families during the Great Recession, a large part of which was due to collapsing home prices. But the piece blames this loss of wealth on “federal policies that pushed lenders to loan money to people unlikely to be able to repay it.” The piece goes on to claim that “well-intentioned housing policies aimed at low-income minorities” have only “[saddled] a lot of minorities with foreclosed homes, huge debt burdens and bad credit scores.”

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Our guest blogger is David Sanchez, a special assistant with the economic policy team at the Center for American Progress Action Fund.

The middle class has been shrinking since the recession as most of the country’s wealth has traveled upward. But any policy aimed at helping working families that also comes with a hefty price tag has little chance of passing through Congress and becoming law.

That doesn’t mean there’s no hope for trying to bolster the middle class, though. The Center for American Progress’ David Madland and Karla Walter put together a list of six policies that could be enacted now that would have a huge impact on those struggling to get by without costing the government anything. Here are some surprising highlights:

Boost retirement savings: Most Americans don’t have enough saved up for retirement to maintain their standard of living: Nearly 60 percent of middle-class retirees will outlive their savings and about half of all households are at risk of having an insecure retirement.

In response, the government could facilitate the creation of a new hybrid retirement plan that combines a traditional pension and a 401(K), the Secure, Accessible, Flexible, and Efficient (SAFE) Savings Plan, and by opening the federal Thrift Savings Plan (TSP), the 401(K) plan for federal employees, to the public. Neither would cost any federal money. The SAFE plan is estimated to cost about half as much as a 401(K) while providing the same benefit level and being more secure. The TSP would provide more suitable investment options with lower fees.

Reduce housing costs: One in five homeowners are underwater on their mortgage. Given that many middle-class families rely on home value to build wealthy, this is a big financial burden.

To address this problem, investors can provide principal forgiveness — permanently reduce the outstanding principal balance of an underwater loan. This would not just give struggling homeowners a boost, thus helping the economy by increasing their spending, but it would also help ensure the long-term success of mortgage modifications and stabilize the hardest hit housing markets. In order for investors to avoid taking the full loss, they could offer “shared appreciation,” in which the borrower pledges to share a portion of future appreciation when the home is eventually sold or refinanced.

Ensure paid sick days: Given that there are no federal laws that guarantee paid sick days, nearly 40 percent of middle-class workers and 55 percent of low-income workers don’t have access to them. Workers who go to their jobs sick cost the economy $160 billion a year.

The government could guarantee the ability to accrue job-protected, paid sick days, which would provide greater job security and reduce turnover. The Healthy Families Act is one way to do just that.

Underwater mortgages aren’t just causing families to make tough financial choices. A crucial revision to a paper on mortgage debt finds that being underwater on a mortgage has a direct impact on consumer spending. As Zachary A. Goldfarb explains, the paper found that in areas where more than half of the homeowners were underwater, they cut back significantly on their spending:

The authors found that being underwater makes a big difference…Zip codes with fewer than 15 percent of homeowners only cut back only a little – spending only half a cent less for every dollar their home fell in value. But in Zip codes where more than 50 percent of homeowners were underwater, borrowers cut back five times as much – spending 2.5 cents less on car purchases for each dollar of reduced housing wealth.

In an e-mail interview, Sufi says he and his co-authors believe the paper is the first to show that borrowers with very high leverage – which would include people who are underwater – are likely to cut back significantly on spending in a housing decline.

This problem doesn’t just have big ramifications for borrowers and their communities. Reduced consumer spending has held back the entire recovery. Other research has found that underwater mortgage debt has been a big economic drag, as the areas that have high mortgage debt also have lower consumption and higher unemployment.

There are some tools to deal with this problem, and the authors of the revised paper suggest that mortgage write-downs could have been very important. “Facilitating mortgage debt write-downs would have softened the blow to household spending,” Amir Sufi wrote Goldfarb in an email. “A dollar lost by a creditor has less of a negative effect on consumption than the positive effect on consumption from a dollar gained by an underwater homeowner.” If consumption were higher, the rest of the economy would likely be doing better as well. A past report found that banks writing down all underwater mortgages to market value and refinancing to a 30-year mortgage would put $71 billion into the economy, creating over a million jobs.

Could federal regulators and their cast of private contractors possibly do a worse job of getting relief to families who were wronged during the foreclosure crisis?

First, private contractors botched their initial review of banks’ foreclosure files. Then, the Office of the Comptroller of the Currency cut a bad deal with mortgage servicers that pays very little – about two-thirds of borrowers will receive only $300.

Finally, adding insult to injury, borrowers are having trouble cashing the disappointingly small checks!

Apparently, in order for borrowers to cash the compensation checks they received, their bank must contact Rust Consulting, the company handling the distribution of compensation funds for the U.S. government in order to verify the checks are cashing. However, when these banks followed typical protocol and contacted the bank issuing the checks, Huntington National Bank, the issuing bank was unable to verify and give approval to cash the check.

In the grand scheme of things, this bureaucratic slip-up can be resolved fairly easily, and the Federal Reserve has assured the public that borrowers should be able to access their compensation going forward. However, this most recent debacle underscores how this entire process has failed millions of families who have already lost their homes and savings during the foreclosure crisis.

A major problem throughout this process has been poor communication and outreach to borrowers. Last summer, the General Accountability Office reprimanded the OCC for ineffective outreach to more than 4 million borrowers who could be eligible for compensation. What’s more, the closed review process by the bank contractors – for which reviewers were paid more per hour than most borrowers will end up getting in total compensation – offered borrowers no opportunity to provide additional information as the contractors were determining whether or not they were wronged and if so, the amount of compensation they were owed.

As that review process became increasingly costly and bogged down, the OCC made a deal with 13 banks which, yet again, provides little meaningful redress to the vast majority of those whose foreclosure were mishandled.

Perhaps it could be amusing – or even inspire a comedy TV show – if a small-town sheriff was bungling its affairs this badly. But it’s no laughing matter when the primary federal regulator of big-bank safety and soundness and its high-priced contractors look like the Bad News Bears.

Our guest blogger is Sarah Edelman, a Policy Analyst at the Center for American Progress Action Fund.

College grads should be getting ready to live the American Dream and buy a house of their own. But they’re being held back by their crushing debt loads, meaning that fewer single family homes are being built. Students got caught in a housing market spiral: many parents who had once used home equity to help finance college costs had to pull back when the market tanked, leaving students to take on more debt, which is now getting in their way of owning their own homes. According to Bloomberg News, at the height of the housing boom, about $7 billion of equity was cashed out to pay for education.

Bloomberg News also reports that young people hold the majority of student loan debt, but their rates of homeownership have cratered:

Two- thirds of student loans are held by people under the age of 40, according to the Federal Reserve Bank of New York, blocking millions of them from taking advantage of the most affordable housing market on record. The number of people in that age group who own homes fell by 4.6 percent in the fourth quarter from the third, the biggest drop in records dating to 1982. […]

The issue is being exacerbated by an explosion in the $150 billion private market for student debt with interest rates for some existing loans surpassing 12 percent. Unlike mortgage holders, borrowers have little hope of refinancing at lower rates.

While a survey found that nine out of ten people want to own their own home, rental demand is at a ten-year high. So while housing construction is starting to rebound, the type that these young people would be building, single family homes, fell 4.8 percent in March. Rather than buying, many are renting – or crashing on their parents’ couch. That’s bad news for the housing market and the economic recovery.

This is all happening at a time when total student debt has inched past $1 trillion. The problem isn’t just that recent grads may be wary of taking on mortgage debt when they already carry such huge burdens. The debt itself likely hampers their ability to get a mortgage in the first place, since due to a high debt-to-income ratio.

Congress could do something small to ease this situation: keep interest rates on federal loans from doubling, as it did last year. But even that won’t be enough to deal with such high amounts of debt that are taking a big toll on the economic recovery.