Plan to allow US mortages with 3% down payment seen as reckless

Washington

MEL Watt, director of the Federal Housing Finance Agency, has set off a political tempest. The cause: 3 per cent down mortgages. Mr Watt, who oversees Fannie Mae and Freddie Mac, unveiled his plan in late October to allow the companies to back mortgages with down payments as low as 3 per cent. Republican lawmakers and some industry executives are lambasting the change as an irresponsible opening of the credit floodgates.

The blowback shows the pressure Mr Watt faces in his effort to expand homeownership six years after defaults on sub-prime loans set off the financial crisis. Mr Watt said low down-payment loans are a safe way to help families with healthy incomes and meagre savings buy homes. Jeb Hensarling, chairman of the House Financial Services Committee, said Mr Watt's plan is a return to the policies that caused the housing crash.