October 20th, 2007 categories: Legislative
With a tidal wave of expected foreclosures looming in the horizon, there is a move by Congress to expand the government-sponsored finance corporations.Increasing the portfolio size over the current $700 billion limit for each Fannie Mae and Freddie Mac is opposed by the current administration. The additional risk could end up being the taxpayers burden. That risk is now being encouraged by Congress with the proviso that Freddie and Fannie have a strong independent regulator overlooking these ostensibly hybrid public/private corporations even though having government backing.Treasury Secretary Henry Paulson is in favor of a temporary extension of the current portfolio size of 700 million. However, Federal Reserve Chairman Bernanke is opposed to expanding the limits, but does see a need for tougher regulations on borrowers as well as lenders. But the latest obstacle to getting each respective portfolio increased lies in the Senate.
As part of their Housing Resource Bill, the Senate wants bigger loan portfolios but tighter regulations over Fannie Mae and Freddie Mac with a new regulator in place.
Along with that there is a move to increase the amount of the conforming loan limit of $417,000. The median price of housing exceeds this low limit in numerous urban markets.
This dispute is taking place all the while that an estimated 500,000 homeowners are facing the likelihood of losing their homes.
If Fannie Mae and Freddie Mac limits were expanded, it could go a long way in replacing many of the Subprime loans, into the less expensive fixed rate loans. Yes, there will be more taxpayer risk if the portfolios limits are extended and increased government backing of these corporations expand. But those in Congress wonder what’s the alternative? Many of the of the other recommended fixes are too small and may be too late in being implemented. Some may view this as giving with one hand and taking away with the other.