Does the name “Mel Watt” ring a bell? No? Well, come Tuesday, he could become the most important person in your professional life.
Let’s start with a simple quiz: who is Mel Watt, and why is he important for the daily real estate agent?
Answer: Watt is currently a member of the U.S. House of Representatives, where he represents North Carolina’s 12 district, but come Tuesday, it’s likely that he’ll become the new director of the Federal Housing Finance Agency (FHFA), a position that would put him in direct control of Fannie Mae and Freddie Mac and make him the most powerful man in the U.S. housing market.
Why would Watt’s appointment be significant? Here are three reasons why:
1. Greater Access to Credit – Chances are good that Watt will push lending institutions to loosen their lending standards a bit, which have been a historically stingy levels the last couple years. As Nick Timiraos points out in the Wall Street Journal, though, such a push could lead to a strange dichotomy in home finance: on one hand, encouraging more private lending could make mortgages more expensive, given that without government guarantees, interest rates could increase; yet on the other hand, new regulations, namely the QM standards, are taking effect in 2014, which could limit private banks’ propensity to lend.
2. Details, Details Details – Though Congress is currently mulling over the details of a bill that would wind down Fannie Mae and Freddie Mac, Watt’s appointment would likely create much more urgency from the FHFA’s standpoint, with more detailed blueprints on how the housing market would transfer from its current status, where the government is responsible for nine out of every 10 new mortgages, back to a privately managed marketplace with a limited government footprint.
3. The Resurrection of Principal Reduction – Ed DeMarco, the FHFA’s current acting director, made PLENTY of enemies in 2012 when he refused to implement a principal reduction plan for underwater homeowners with Fannie/Freddie-backed mortgages, arguing that the damages such a plan would wreak on the GSEs’ balance sheets exceeded its supposed benefits to the housing market. Given that the White House has long championed principal reductions, though, there’s a very strong chance that once Watt takes over the FHFA, he’ll look into the implementation of such a program.