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Ignorance is Bliss…Unless it has to Do With Our Mortgages.

Ignorance is Bliss…Unless it has to Do With Our Mortgages.  FHFA Director Mel Watt has been in office since January 6th, 2014, and his low profile over the past three months has left the public unsettled.

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Contact: Brittany Williams

Brittany.williams@broadviewmortgage.com

Broadview Mortgage – Katella Branch

(714) 464-2945

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Thursday, April 24, 2014 – Orange, CA – When Mel Watt was sworn in on January 6th, 2014 to the FHFA as Director, the nation had set large expectations of change – both democrats and republicans alike.  A Wall Street Journal headline read, Mel Watt Has Signaled a Major Housing-Policy Shift.  The article was released days before Watt was sworn in, and it predicted Watt’s seemingly obvious reform and that he would make significant changes throughout his time as director of the FHFA.

In December of 2013, just one month prior to being sworn in, Mel Watt announced that he would delay loan-fee hikes that were originally planned by his predecessor, Edward DeMarco.  This decision caught everyone’s attention, and only amplified the prediction that Watt was ready to change the direction that the FHFA was already moving towards.  The Wall Street Journal stated, “Mr. Watt’s confirmation as the FHFA’s director could presage the largest potential shift in housing policy since the companies were taken over by the government in 2008.”  The loan-fee hikes originally requested by DeMarco would raise fees for mortgage giants Fannie Mae and Freddie Mac, which would subsequently be passed along to Fannie & Freddie borrowers as higher mortgage rates.  The borrowers who would incur the fees would be the borrowers with less-than-perfect credit, or those without a large enough down payment, thus creating a bigger barrier of entry for many Americans.

This decision to delay the proposal indicated that Mel Watt would take a “consumer-friendly” approach to his decisions during his time as director, and give more Americans access to mortgage credit.  The reason why DeMarco wanted to increase the fees in the first place was so that private mortgage investors could better compete with Fannie Mae and Freddie Mac, which would push back excessive government involvement in the housing market.  This decision had caused Watt to be viewed by bond managers as a threat to their investments.  Overall, the decision to delay left everyone on the edge of their seats with regards to his next moves.  Watt’s reasoning for the delay was that he wanted to more thoroughly review the full situation before reaching a conclusion.

Other than the fee-hike decision, Watt came into quite a few other pending decisions including shrinking Fannie and Freddie’s presence in the housing market.  One pending effort to do this was to decide whether to reduce the maximum loan amount that Fannie and Freddie would finance.  Of course, the maximum loan amount varies by location.  Decreasing loan limits could affect how much borrowers would have to pay as financial institutions charge borrowers more for loans that won’t be able to be sold to Fannie Mae or Freddie Mac.  Watt also has to decide how to proceed with a plan to lower the amount of financing available for apartment buildings.

Most importantly for homeowners, Watt was expected to expand the Home Affordable Refinance Program (HARP).   The objective of the HARP program is currently to allow responsible homeowners without equity on their homes to refinance as long as they have a mortgage loan backed by Fannie Mae or Freddie Mac and given that they meet a few other requirements.  The expansion of the HARP program was speculated to include non-Fannie Mae/Freddie Mac mortgage loans, and also to allow homeowners to refinance if their loan was originated in 2011 as opposed to its current cut-off date in 2009.  In President Barack Obama’s State of the Union in 2013, he addressed the need for an expansion in HARP by saying, “Too many families who have never missed a payment and want to refinance are being told no.  That’s holding our entire economy back, and we need to fix it.  Right now, there’s a bill in this Congress that would give every responsible homeowner in America the chance to save $3,000 a year by refinancing at today’s rates…”  In President Barack Obama’s State of the Union Address 2014, the discussion of HARP was simply not on the table, but many were still convinced that Mel Watt would take care of getting the bill passed upon his appointment as new director of the FHFA.  DeMarco previously rejected the idea of expansion, as increasing home prices would cancel out the need to reduce borrowers’ principal payments.

However, despite the urgency and potential impact of all of these decisions, Mel Watt has kept a surprisingly low profile throughout his three and a half months as director of the FHFA.  Not only has everyone been kept in the dark about the direction Watt is taking with his decisions, but the public has yet to receive the FHFA’s annual strategic plan, which is typically released to the public during the first quarter.  Already in the second quarter of 2014, the public is left empty handed, certainly raising questions about whether there even is a strategic plan just yet.

Similar to the annual strategic plan, the public is also meant to receive an annual scorecard from the FHFA during quarter 1, which includes information about the direction Fannie Mae and Freddie Mac are going in.  With regards to some of the decisions that Watt has inherited, the scorecard should specify certain answers as it includes fees that Fannie/Freddie will charge in 2014, as well as loan limit information which affects costs and availability of mortgages to borrowers.

Needless to say, Watt’s course of action has been underwhelming considering the $5 trillion industry that Watt has landed himself.  According to Reuters, the news source that uses the play on words “low Wattage”, “sources inside and close to the FHFA say they believe he is largely comfortable with the current direction of the two companies and they do not expect to see dramatic changes.”  It now seems apparent, that perhaps Watt taking over as Director of the FHFA was overly hyped up with respect to the prediction of ‘significant change’.  Regardless, the delay of the scorecard and strategic direction has spurred concern throughout the country.

Broadview Mortgage values the opportunity to educate consumers to understand which direction that their current or future mortgage is taking them in.  If you have any questions about the information herein, feel free to reach out to the Author, Brittany Williams, at Brittany.williams@broadviewmortgage.com .  If you would like a quick pre-approval click here, and for assistance with down payment or buyer assistance, click here.  You are also always free to give us a call toll free at (855) 692-7623.

Since 1988, Broadview Mortgage has distinguished itself through honest business relationships with clients, loyalty to employees, and commitment to empowering and educating those communities.  Broadview Mortgage is a mortgage banker and direct lender made up of loan officers with years of experience in the firm and sheer excellence in customer service. The firm works to explore several financial solutions for its clients, for which they choose.  Business is initiated and conducted on a word-of-mouth basis.  Broadview Mortgage is a delegated underwriter for the Federal Housing Administration (FHA), the Veterans Administration (VA), and the Federal National Mortgage Association (FNMA).  Broadview is also approved to participate in several state, county and city programs for First Time Home Buyers.

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