On Tuesday, Mel Watt, the newly installed overseer of Fannie Mae and Freddie Mac, said the mortgage giants should direct their focus toward making more credit available to homeowners, a U-turn from previous directives to pull back from the mortgage market.
In coming weeks, six agencies, including Mr. Watt’s, are expected to finalize new rules for mortgages that are packaged into securities by private investors. Those rules largely abandon earlier proposals requiring larger down payments on mortgages in certain types of mortgage-backed securities.
The steps mark a sharp shift from just a few years ago, when Washington, scarred by the 2008 crisis, pushed to restrict the flow of easy money that fueled the housing bubble and its subsequent bust. Critics of the move to loosen the reins now, including some economists and lenders, worry that regulators could be opening the way for another boom and bust.
For the past year, top policy makers at the White House and at Federal Reserve have expressed worries that the housing sector, traditionally a key engine of an economic recovery, is struggling to shift into higher gear as mortgage- dependent borrowers remain on the sidelines.
Both Treasury Secretary Jacob Lew and Federal Reserve Chairwoman Janet Yellen last week noted the housing market as a factor holding back the economic recovery.
1. It is not surprising that the federal government would want to support homeownership: pretty much every President since the 1920s has extolled the virtues of owning a home. Additionally, since the late 1800s homeownership has been a key marker of the American Dream.
2. The comments made earlier this week make it sound like the government sees housing as a sector that should help lead the economy. In other words, housing is an industry with a wide impact from developers to the construction industry to real estate agents to individuals looking for a home. Housing doesn’t necessarily have to be viewed this way; the article also hints that housing is lagging behind other parts of the economy. Put differently, housing improves after other parts of the economy improve.