Housing Regulator Has Big Plans In Store For Two Mortgage Titans

A top federal regulator for the U.S. housing market signaled some big changes for government-run mortgage giants Fannie Mae and Freddie Mac. The changes likely mean lending will be expanded.

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A top federal regulator of the U.S. housing market signaled some big changes today, changes that will likely allow more people to qualify for mortgages - either to buy a home or refinance. That's because the government-run mortgage giants Fannie Mae and Freddie Mac will now be directed to make that a bigger priority.

And joining us to talk about this is NPR's Chris Arnold. Chris, the regulator we're talking about here is Mel Watt. He's a former congressman from North Carolina. And he has taken over as the new head of the Federal Housing Finance Agency.

CHRIS ARNOLD, BYLINE: Right. Now, most people have probably never heard of the FHFA, but this is a really big deal. And I think one way people can wrap their head around this is that Mel Watt is now the captain of the government's role in the housing market. And as the captain, he's in charge of two big ships and those ships are called Fannie Mae and Freddie Mac. And they control trillions of dollars worth of mortgages. They also get to decide who qualifies for those mortgages.

And Mel Watt is sailing these big ships in a very different direction than the last captain. That was a Republican appointee and Mel Watt's a Democratic appointee, so we're bound to see some changes here as we go forward.

BLOCK: And what are those changes? What does Mel Watt said he wants to do about mortgages?

ARNOLD: Well, he says one thing he wants to do is remove obstacles that are making banks overly cautious about lending right now and that's making it hard for people to get mortgages. He also says he's not going to reduce the size of loans that the government might back. That was something that was on the table before. And he also wants to see the government playing a greater role in stabilizing neighborhoods. And you talked about one pilot project in Detroit that he wants to do, where there might be more aggressive loan modifications programs - that is, efforts to keep homeowners in their houses. And then also some programs to get nonprofits to work with people in the community to buy up like blighted properties or foreclosed properties and buy them and fix them up and improve the neighborhood.

BLOCK: Chris, let's talk a bit about the overall future of Fannie and Freddie. Listeners will remember that they needed a massive taxpayer bailout when the housing market crashed. And a big question now for Congress is should Fannie and Freddie be dismantled? How's that going?

ARNOLD: That's a really interesting question. And the answer has shifted over time. So, yes, the government bailed out Fannie and Freddie for $188 billion, just a huge amount of money, and the government took control of Fannie and Freddie. Back then, this is when the housing market crashed, Democrats were upset, Republicans were upset, all the legislation was aimed at dismantling Fannie and Freddie. But now, the housing market's come back. The government's been paid back $25 billion more than it even gave to Fannie and Freddie. So civil rights groups and housing advocates are now pushing back and saying, hey, look, you want to get rid of Fannie and Freddie but that's going to hand a lot of power to Wall Street and take power from government. Is this such a good idea? Let's stop. Let's rethink. And they're getting some traction and that's derailing some of the leading reform bills.

BLOCK: And along with those questions, Chris, there are also a bunch of lawsuits that have sprung up. These are from investors who are suing the government for some of the profits that Fannie and Freddie have been generating. What are those about?

ARNOLD: Right. These lawsuits basically say, look, the Treasury Department over-reached here. And if you remember, the bank bailouts, some big banks took money from the government and then they paid interest, they paid the government back and they went on about their lives. In Fannie and Freddie's case, you could say it was similar. They took a lot of money, they've paid back now more than they borrowed, but they're still wards of the state and they're paying all of their profits to the Treasury forever. The lawsuits say, hey, that's not fair, it's probably illegal. So a bunch of hedge funds made big bets and said, look, we're going to win in court and the government's going to have to pay us a bunch of money. So there's a lot going on here.

BLOCK: OK. NPR's Chris Arnold. Chris, thanks so much.

ARNOLD: Thanks, Melissa.

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