Washington Moving Fast to Ease Mortgage Credit Crunch
Following adoption of comprehensive policy by the NAHB Board of Directors on Sept. 8 calling on the Federal Reserve Board, the Administration, Congress and federal regulators to take prompt action to address further erosion in housing and prevent a full-blown economic recession, significant steps were taken in Washington last week to stabilize the financial markets, restore the mortgage markets to health and develop solutions to the subprime and foreclosure problems.
“I am pleased to report that less than two weeks after we left Seattle, we have seen important progress in all these areas as Washington policymakers have responded to our concerns,” NAHB Brian Catalde said in a Sept. 21 memorandum to the association leadership.
“The Federal Reserve Board has cut interest rates, some needed reforms are moving through Congress and federal regulators are providing Fannie Mae and Freddie Mac with more flexibility to address the subprime crisis,” Catalde said. “I want to emphasize upfront that these developments are an important first step in our battle, and that your association will continue to work tirelessly until the housing market turns around.”
The encouraging economic news coming out of Washington last week:
- Federal Reserve. The Federal Open Market Committee on Sept. 18 announced that it was cutting its federal funds and discount rates by one-half of a percentage point, sending a strong signal to the financial markets and consumers that it intends to keep the economy moving forward, which is key to stabilizing housing. By lowering borrowing costs, the Fed action is expected to help ease the credit crunch in mortgage markets and potentially forestall foreclosures on loans that are scheduled to reset in the near future, which would prevent homes from being returned to the market at a marked-down price. However, it will take about six months for the full effects of the rate cults to be felt by consumers.
In the weeks leading up to the Fed’s big announcement, NAHB’s Economics team provided the Fed with regular updates on the health of the housing sector and the need to act decisively to bolster housing and the economy.
“As many of you heard in Seattle, I led a delegation of a cross-section of builders who met with Fed Chairman Ben Bernanke on Sept. 5 to discuss the state of the nation’s housing industry,” Catalde said. “Bernanke heard first-hand accounts of how the sharp housing downturn was affecting our members and their local economies and why bold action was needed to restore liquidity at the short end of the financial markets.”
Catalde noted that the data provided by NAHB and the face-to-face meeting with Bernanke were no doubt a factor in the Fed’s decision to move aggressively to ease monetary policy.
- Office of Federal Housing Enterprise Oversight (OFHEO). On the regulatory front, OFHEO announced on Sept. 19 that it would allow both Fannie Mae and Freddie Mac to raise their portfolio limits by 2% annually so that they could invest more than $20 billion in subprime mortgages.
“Though this is a positive step forward, it falls short of what we asked for and what we believe is needed,” said Catalde. “NAHB has been pushing — and continues to push — for OFHEO to allow both Fannie and Freddie to raise their portfolio cap by 10% to buy more subprime loans, to help keep borrowers from foreclosure and to keep mortgage money flowing.”
Last month, NAHB along with other industry groups sent a letter to OFHEO seeking this change, and Jerry Howard, the association’s executive vice president and CEO, met with OFHEO Director James Lockhart to discuss this issue early this month.
Also, in meetings this month Catalde and Howard called upon the CEOs of Fannie Mae and Freddie Mac to concentrate their resources on bringing more liquidity to the mortgage markets and helping to relieve the credit crunch on a sustained basis for the duration of the crisis. Communications are ongoing and more leadership meetings are planned in coming weeks.
In testimony before the House Financial Services Committee on Sept. 20, Treasury Secretary Henry Paulson said that the Bush Administration would consider allowing Fannie Mae and Freddie Mac to temporarily purchase home loans above the conforming limit of $417,000 as part of broader legislation to reform the two housing government-sponsored enterprises (GSEs). The media picked up on this statement, because up to this point the Administration had staunchly opposed raising the conforming loan limits for Fannie and Freddie. NAHB has adopted policy urging Congress to pass legislation already approved by the House that would strengthen the regulatory oversight of Fannie and Freddie and allow them to purchase loans that exceed the conforming loan limit in high-cost markets.
- Congress. By a strong bipartisan margin of 348 to 72, the House approved Federal Housing Administration (FHA) reform bill H.R. 1852, the Expanding American Homeownership Act of 2007. “This legislation is an important step forward to address problems in the subprime mortgage market and to help creditworthy borrowers obtain home loans at prices and terms they can afford,” Catalde said.
Prior to the vote in the House, lawmakers approved an NAHB-supported amendment by Reps. Barney Frank (D-Mass.), Gary Miller (R-Calif.) and Dennis Cardoza (D-Calif.) that would enable more creditworthy borrowers to purchase an FHA-insured home in many high-cost metropolitan markets.
A companion FHA reform bill was approved by the Senate Banking Committee on Sept. 19, where the real challenge is to move this legislation quickly. “We will be pushing hard to get this bill to the Senate floor as soon as possible,” said Catalde.
The House Ways and Means Committee is also considering a change to the tax laws to eliminate any tax penalties home owners might face when banks renegotiate the terms of a home loan and forgive a portion of the outstanding mortgage. “This legislation is one of the policy provisions approved at our board meeting in Seattle, and we will continue to urge lawmakers to promptly move this bill forward.”
NAHB last week placed ads in weekly news magazines Roll Call and the National Journal calling on Congress to do its part in easing the credit crunch by enacting reform of the FHA and Government Sponsored Enterprises Fannie Mae and Freddie Mac and adopting the tax law changes on mortgage debt forgiveness.
Catalde noted that NAHB has also stepped up its efforts in the news media on the mortgage credit crunch issue and to inform consumers on why now is a good time to buy a home.
“I want to stress that while these are important steps forward, we have a long way to go,” Catalde said. “My fellow Senior Officers and the entire staff at NAHB understand that there is no easy, quick fix to the crisis. We are all in this for the long haul, and pledge to do all in our power to help get housing moving forward ahead.”
To read the House FHA bill, click here and enter H.R. 1852 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.