Democrats on Monday stepped up pressure on the Bush administration to let Fannie Mae and Freddie Mac buy more mortgages than their portfolios currently allow to forestall an ‘October surprise’ of subprime mortgage resets.
In a letter to Ben Bernanke, chairman of the Federal Reserve, Barney Frank, chairman of the House financial services committee, criticised the administration’s reluctance to lift caps on the two government-sponsored mortgage portfolios as “a triumph of a fairly rigid ideology over the facts of the situation”.
Mr Frank’s comments came after Chuck Schumer, senator from New York, introduced a bill to temporarily lift the caps by 10 per cent.
Mr Schumer said the bill would free $145bn for the purchase of new mortgages and allow Fannie and Freddie to buy mortgages larger than the current $417,000 limit in “high-cost areas”.
George W. Bush recently unveiled measures to help the most distressed borrowers, but Democrats appear to believe there is continued political capital in attacking the administration’s strategy.
Chuck Schumer, senator from New York, introduced a bill that would temporarily lift caps on the government-sponsored entities’ mortgage portfolios by 10 per cent. He said this would free up $145bn for the purchase of new mortgages.
Fannie and Freddie’s regulator, the Office of Federal Housing Enterprise Oversight, has said federal limits on their combined $1,400bn portfolios – imposed in the wake of accounting irregularities – should remain for “safety and soundness” reasons.
Mr Bush two weeks ago let the Federal Housing Administration, which insures mortgages for low- and middle-income borrowers, guarantee loans for borrowers at risk of default to help them refinance.
However Mr Schumer said his bill was necessary “on account of the Bush administration’s refusal to tap the GSEs to play the role they were designed for”.
“This emergency measure is not only important to restore confidence in the mortgage market for current and aspiring home buyers, but it would also provide crucial and necessary financing by Fannie and Freddie to subprime foreclosure relief efforts across the country before the ‘October surprise’ of subprime resets further shocks the mortgage markets,” he said.
The subprime crisis is especially severe in the politically important electoral “swing states” of Ohio and Florida.
“Anything that appears to address the concerns of voters in these states might have far more traction than in a non-election year,” said Karen Weaver, analyst at Deutsche Bank.
“This is true regardless of whether the problems were caused by subprime, or whether these solutions will be effective. This is now the realm of politics and not of economics.”