Bill to Add GSE Powers Proposed in Loan Crisis

By Sloan, Steven | American Banker, September 11, 2007 | Go to article overview

Bill to Add GSE Powers Proposed in Loan Crisis


Sloan, Steven, American Banker


WASHINGTON -- The continuing dispute between the White House and congressional Democrats over how to resolve problems in the mortgage market entered a new stage Monday, with Sen. Charles Schumer saying he would introduce a bill to expand the reach of the government-sponsored enterprises.

The bill, which the New York Democrat called an "emergency measure," was a rebuke to the Bush administration's refusal to let Fannie Mae and Freddie Mac buy larger mortgages and expand their mortgage portfolios. If the bill is enacted, their mortgage portfolios could grow by 10%, and the GSEs could buy loans as big as $625,500. Both provisions would sunset after a year.

"It's a measure that will directly address the root of the problems in our broader credit market, which is the fallout from subprime mortgages," Sen. Schumer said in a conference call with reporters. "Fannie and Freddie are the missing link to stem the tide of foreclosures."

Sen. Schumer warned last month that he would introduce legislation easing restrictions on the GSEs unless the Bush administration let them play a larger role in combating the subprime crisis. But as the crisis has evolved, the White House has been reluctant to use Fannie and Freddie to help struggling homeowners.

Many times in the past month, Sen. Schumer has urged the Office of Federal Housing Enterprise - the GSEs' regulator - to lift the caps. But the agency has not budged.

"We continue to have safety and soundness concerns with both enterprises that lead us to conclude that the caps should remain," OFHEO Director James Lockhart told Sen. Schumer in a Sept. 6 letter.

In a press conference last month, President Bush said Congress should pass a bill to reform the regulation of the GSEs before adding flexibility to the mortgage portfolios or conforming loan limit is considered. And the centerpiece of the president's mortgage fix is an overhaul of Federal Housing Administration lending, not more flexibility for the GSEs. …

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