WASHINGTON – The Senate Banking Committee endorsed a bill yesterday that will shift the burden of paying for the rescue of troubled subprime mortgages to Fannie Mae and Freddie Mac by dedicating as much as $500 million over the next year from an affordable housing fund to be paid by the secondary market giants to a new scheme to refinance hundreds of thousands of failing home loans.
The funds were originally supposed to be spent on rebuilding homes in New Orleans that were destroyed by Hurricane Katrina, but the ongoing crisis in the mortgage market has apparently taken over top priority for lawmakers.
The bill, which must now be voted by the full Senate, then reconciled with a House version, would allow the Federal Housing Administration to insure up to $300 billion in new home loans that would refinance troubled subprime mortgages. The insurance on the loans would be funded by an affordable housing trust fund created by payments from Fannie and Freddie. The affordable housing fund, similar to some $150 billion a year set aside by the 12 Federal Home Loan Banks, would be used to eventually finance low-income housing projects.
The new Senate bill would also create a new federal regulator for Fannie and Freddie to replace the Office of Federal Housing Enterprise Oversight and would require the new regulator to submit any new products and services offered by Fannie or Freddie to a public comment process. The credit union lobby strongly opposed this provision because of the benefits that Fannie and Freddie products, like their automated underwriting software, has meant to their ability to compete with the mortgage giants.
The bill does not include a proposal to permanently allow Fannie and Freddie to buy so-called jumbo loans, those over the $417,000 single family conforming loan limit. Recently passed legislation allows the two mortgage giants to buy jumbo loans on an emergency basis until the end of this year.
New York Sen. Charles Schumer said he hopes to include the jumbo loan provision in the mortgage bill as it proceeds to a vote by the full Senate. "It would be a serious problem, and really crimp the recovery we have in certain parts of the country," said Schumer, of the absence of the jumbo loan provision. "We have to correct it before we bring the bill to the floor."
North Carolina Sen. Elizabeth Dole said she hopes to get included in the bill a provision that would have the new Fannie and Freddie regulator set national standards for real estate appraisals to ensure that loans being approved are adequately collateralized.
