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Flurry of Bills Aimed at Mortgage Credit Crunch
Though federal lawmakers adjourned early last week to attend the funeral of Rep. Paul Gillmor (R-Ohio) and mark the observance of Rosh Hashana, the Jewish New Year, legislative proposals were floated in both chambers to do more to fight the mortgage credit crunch.
Sen. Charles Schumer (D-N.Y.) on Sept. 10 introduced legislation that would temporarily lift the portfolio caps and loan limits for Fannie Mae and Freddie Mac to allow the two financial institutions to provide liquidity to the jumbo mortgage market and to help subprime borrowers refinance mortgages that could become burdensome when the interest rate is reset and monthly payments increase significantly.
S. 2036, the Protecting Access to Safe Mortgages Act, would allow the two housing government-sponsored enterprises (GSEs) to increase their mortgage portfolios by 10% and to raise their conforming loan limits by up to 50% in high-cost areas. The temporary increase in the portfolio caps and loan limits would last one year.
Schumer says the cap increase would free up $145 billion for the purchase of new jumbo mortgages in metropolitan areas where the median single-family home price is above the GSEs’ current conforming loan limit of $417,000. In a press release announcing the bill, the senator said that half of this amount would “go specifically towards refinanced mortgages for borrowers whose existing adjustable rate loans were scheduled for an interest-rate reset between June 2005 and Dec. 2009.”
“This common-sense measure will deliver a shot in the arm that could make refinancings possible for tens of thousands of Americans trapped in the subprime mess,” Schumer said. “Together with nonprofits, lenders and loan servicers, Fannie and Freddie are the missing ingredient to stem the rising tide of foreclosures that is about to hit the economy. The bottom line is that we should be deploying Fannie and Freddie to do the job they were designed to do.”
Separately, House Financial Services Committee Chairman Barney Frank (D-Mass.) on Sept. 7 sent a letter to Federal Reserve Chairman Ben Bernanke arguing that the Fed and the Administration need to do more to allow Fannie Mae and Freddie Mac to address the problems in the mortgage markets.
Frank suggested that Bernanke’s opposition to raising the portfolio caps of Fannie Mae and Freddie Mac is “ideological, not driven by safety and soundness.”
Frank concluded his letter by asserting that Fannie and Freddie should be allowed to increase their mortgage portfolios and the conforming loan limit to help alleviate current problems in the subprime and jumbo mortgage markets.
Frank subsequently said on Sept. 11 that he plans to offer an amendment this week to Federal Housing Administration reform bill H.R. 1852 to allow Fannie Mae and Freddie Mac to purchase mortgages of up to $500,000. Frank said that his amendment would not only raise the conforming loan limit to $500,000, but also give the HUD secretary the ability to raise the limit when that action is warranted by market conditions. The full House is expected to consider the bill later this week.
In an effort to help subprime borrowers who are in default on their mortgages, legislation recently introduced in the House and Senate would ensure that home owners would not be required to pay any income tax on mortgage debt that is forgiven during the foreclosure process.
H.R. 1876, the Mortgage Cancellation Tax Relief Act, was introduced in the House by Reps. Rob Andrews (D-N.J.) and Ron Lewis (R-Ky.). Sen. Debbie Stabenow (D-Mich.) has a similar bill, S. 1394, pending in the Senate.
To read the legislation, click here and enter the bill number in the box at the center of the page.
For more information, e-mail Michael Strauss at NAHB, or call him at 800-368-5242 x8252.
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