The New York Times reports:
Democrats also want the administration to let Fannie Mae and Freddie Mac buy a larger volume of mortgages for their own portfolios. The two government-sponsored companies buy billions of dollars in mortgages each year, up to a loan limit of $417,000, and package them into securities that can be traded. They also hold some of the bundles of mortgages in their own portfolios to increase returns to shareholders.Barney Frank(Democrat-Fannie Mae).
Democrats, including Mr. Frank in the House and Senator Christopher J. Dodd of Connecticut, chairman of the Senate banking committee, contend that Fannie Mae and Freddie Mac could help thousands of people refinance their subprime mortgages if the two finance giants were allowed to hold those loans in their portfolios.
The Treasury Department has opposed that kind of expansion, arguing that the two companies crowd out commercial rivals because they exploit an implied government guarantee to borrow money at lower rates than their rivals.
Treasury officials have indicated a willingness to let Fannie and Freddie play a bigger role, but they argue that letting the two companies hold more mortgages — the current regulatory limit is about $700 billion for each — would pose a risk to taxpayers without helping homeowners.
Mr. Frank has argued that Congress should also increase the size of mortgages that Fannie and Freddie can buy, from $417,000 now to $500,000 or even $650,000 in markets like San Francisco and New York.
Some specialists warn that simply switching out of an adjustable loan will not keep all homeowners from losing their houses.
“The problem is that a lot of people have bought more house than they can afford and in many cases the price has dropped a great deal,” said Dean Baker, co-director of the Center for Economic Policy Research, a liberal research group in Washington. “If we do a workout that allows someone to pay off a $240,000 mortgage on a house that would only sell for $220,000, have we really done them a favor?”
