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Federal GSE Backing Needed to Reduce Mortgage Rates
To support the mortgage markets and bring down mortgage interest rates, the nation’s home builders on Nov. 24 called on federal officials to clearly affirm that the government will provide long-term guarantees for the debt and securities purchased by Fannie Mae and Freddie Mac.
Investors are confused over the extent of federal support for long-term obligations held by the housing government sponsored enterprise (GSEs) and that uncertainty has pushed spreads on GSE debt in relation to Treasury yields to record highs, Jerry Howard, president and CEO of NAHB, said in a letter to Treasury Secretary Henry Paulson and Federal Housing Finance Agency Director James Lockhart.
“As a result, mortgage rates are at unacceptably high levels, which is forestalling recovery of the housing market and creating a major drag on the economy,” Howard added.
Under the provisions of the Housing and Economic Recovery Act of 2008 (HERA), the Treasury’s temporary and unlimited authority to purchase GSE debt and equity and ensure that Fannie Mae and Freddie Mac have continuous access to liquidity on an as-needed basis, will end on Dec. 31, 2009.
Markets are unsure of the extent of federal support for the GSEs beyond that date. Additionally, the Federal Deposit Insurance Corporation’s recent guarantee program for senior, unsecured debt has caused investors to view those obligations as more secure than GSE debt.
“This misperception has resulted in wider long-term senior debt spreads for the GSEs, which has, in part, raised mortgage rates to unnecessarily high levels,” said Howard.
To bolster investor demand for GSE securities and thereby reduce mortgage rates, NAHB is calling on the Treasury to resolve investor uncertainty by explicitly guaranteeing GSE debt in the same way the FDIC has provided guarantees for bank debt. In addition, the Treasury should increase its purchases of mortgage-backed securities issued or guaranteed by Fannie Mae and Freddie Mac as authorized under HERA.
For more information, e-mail David Ledford at NAHB, or call him at 800-368-5242 x8265.
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