Fannie, Freddie provide ammo for critics

Federal regulators "have been vindicated" in their opposition to allowing Fannie Mae and Freddie Mac more leeway to buy up mortgage loans, according to a story/editorial by Washington, D.C.-based reporters for Britain's Financial Times (via Yahoo!).

The government chartered, for-profit companies saw their stocks take a pounding after both reported third quarter losses.

More importantly, for those who are counting on Fannie and Freddie to help home buyers weather the crisis in mortgage lending, the losses could restrict their ability to purchase, guarantee and securitize loans (see previous post, "No room on the lifeboat").

James Lockhart, director of the Office of Federal Housing Enterprise Oversight, tells the FT that while Fannie and Freddie's ability to purchase loans may be constrained, there's no reason they can't continue to grow their loan guarantee and securitization activity, in which loans are bundled up and sold to investors.

But Lockhart is just as adamant as ever in his opposition to bills that would A) lift the 2 percent annual growth caps on Fannie and Freddie's loan portfolios, allowing them to purchase more loans and B) raise the $417,000 conforming loan limit to ease the credit crunch on jumbo loans.

Thanks to Fannie and Freddie's recent problems, Lockhart is likely to find more support for his views that allowing the government-sponsored entities (GSEs) more leeway to purchase loans would be  "unnecessary, unsafe and unsound" (see Inman News story).

Lockhart made those comments in a letter to Pennsylvania Democrat Paul Kanjorski, who shares some of the Bush administration's concerns about the wisdom of giving the GSEs a bigger role.

But Democrats who have introduced legislation to do just that are standing behind it. In a Nov. 15 press release Sen. Charles Schumer, D-N.Y., said Fannie and Freddie are "the only game in town" for secondary market purchases of mortgage loans.

Schumer said Fannie and Freddie "are not the same as a private company whose job is to make money for owners or stockholders" -- which may come as news to stockholders in the companies -- and that the Bush administration is opposed to giving them a greater role because "they just don't like Fannie and Freddie and they say let the markets take care of this in their own way."

With Fannie and Freddie providing ammunition for critics, that kind of rhetoric may no longer be enough to build the political support for putting the GSEs on a longer leash.

Update: Another point of view in the Financial Times, from former Clinton Treasury Secretary Lawrence Summers, who argues for more gov't intervention (hat tip to Pat Kitano at Transparent Real Estate).

All rights reserved. This content may not be used or reproduced in any manner whatsoever, in part or in whole, without written permission of Inman News. Use of this content without permission is a violation of federal copyright law.