Schumer Proposes New Mortgage Bill

September 10, 2007 No Comments »

Senator Charles Schumer of New York, who heads the housing panel of the Senate Banking Committee, proposed his highly touted bill to increase GSE investment caps by 10% Monday morning.

The move would allow Fannie Mae and Freddie Mac to increase output by an additional $145 billion or 10%, expanding the mortgage firms’ current 40% share of the $10.9 trillion U.S. residential mortgage market.

Half of that $145 billion would be pledged to refinance adjustable-rate mortgages for borrowers whose rates are scheduled to reset in coming months.

“This common-sense measure will deliver a shot in the arm that could make refinancings possible for tens of thousands of Americans trapped in the subprime mess,” Schumer said in a statement.

The bill will also increase the maximum conforming loan amount to $625,500 in more expensive housing markets nationwide, currently set at $417,000.

The problem with the current conforming loan amount is that in many regions of the country, median home prices are well above the conforming limit, making it extremely difficult for homeowners to obtain financing or refinance current loans.

“This is what Fannie and Freddie were designed for,” Schumer said. “To have the public purpose and use private-sector knowledge and dollars.”

But past accounting problems at Fannie and Freddie, and questions of financial stability may block the proposal.

In an August 27 letter to Senator Schumer, Bernanke said it wouldn’t be necessary to lift the assets caps currently placed on Fannie Mae and Freddie Mac.

Last week a bill was introduced by Senate Banking Committee Chairman Christopher Dodd which would ban prepayment penalties and prohibit the intentional “steering” of customers to higher-priced loans, high-risk loans.

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