By Jim Puzzanghera
January 27, 2015

The regulator for bailed-out housing finance giants Fannie Mae and Freddie Mac told lawmakers Tuesday that new programs to back mortgages with down payments as low as 3% had enough safeguards to make them as safe as loans with higher down payments.

Melvin L. Watt, director of the Federal Housing Finance Agency, faced sharp criticism from Republicans at a three-hour House hearing that he was risking the loss of taxpayer money by returning to the irresponsible lending practices that caused the subprime housing market bubble.

But Watt, a former longtime House Democrat, said the agency had taken steps to make sure that a loan with a 3% down payment “is just as safe” as a loan with a 10% down payment.

“When the down payment is lower, there’s the potential it can be a riskier loan,” Watt said. “But when you pair that with other compensating factors … you offset that additional risk. That’s exactly what we’ve done.”

The programs from Fannie and Freddie require full documentation, strong credit scores, housing counseling and private mortgage insurance, Watt said.

Also, the loans will make up only “a very small percentage” of the mortgages in the portfolios of Fannie and Freddie, he said. Fannie began its program in December and Freddie’s will start in March.

Their goal is to expand the opportunity for homeownership to people who can afford a mortgage but haven’t been able to save enough for a larger down payment, Watt said.

“If somebody can’t pay a loan, they shouldn’t be given a loan,” he said. “It would be irresponsible to say we should be making those loans or that Fannie and Freddie should be backing those loans.”

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