Commercial Property

Realty Viewpoint: Freddie Mac, Fannie Mae Reform Should Proceed Cautiously

Conforming loan limits backed by Freddie Mac and Fannie Mae have been temporarily raised, but the battle to improve lending is far from over. The National Association of Realtors would like to see legislative reform to the government sponsored enterprises. The N.A.R. wants safety and soundness in expanding the GSE"s role in the secondary mortgage market. Any reform should include a strong regulator and GSE governance so the GSEs don"t get into more trouble than they"ve already been in due to their creative accounting. While the temporary limits are nearly $730,000, few believe that conforming loan limits will be allowed to reach that number permanently. The N.A.R."s research found that simply increasing the loan limits for Fannie Mae and Freddie Mac to $625,000 would permit as many as 300,000 families to enter the housing market, reduce foreclosures by as many as 210,000 and allow as many as 500,000 jumbo loan borrowers to refinance to lower cost loans. The savings per household would be between $274 to $411 a month. But what the temporary reform does is transfer risk to the GSEs from the subprime lenders. Loans approved for resale by the GSEs are federally insured. Can we afford for the GSEs to take that much risk? Treasury Secretary Henry Paulson doesn"t think so. He was one of the biggest objectors to raising loan limits without further oversight of the GSEs, but he was steamrolled by Speaker of the House Nancy Pelosi (D-California), the federal government, the real estate lobby and banks. Let"s not forget that Bank of America, with the purchase of Countrywide, is now the biggest mortgage lender, and can now make the equivalent of jumbo loans with ready buyers for its mortgages, nicely packaged into fireproof securities. What Paulson did was push the economic stimulus package forward with Congress in time for Bush to sign off on it Wednesday. The issue of oversight for the GSEs hasn"t been forgotten, it"s just been delayed for the greater good. Let"s hope the GSEs will operate as if they already reformed. They should -- with the nation"s spotlight on how they will handle the new larger loan limits.


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