FOR IMMEDIATE RELEASE: August 16, 2007

Schumer: If Bush Regulators Won't Lift Fannie And Freddie Mortgage Portfolio Caps, Congress Must Act Instead

As Nation's Largest Lender Becomes Latest Casualty of Credit-Market Turmoil, Schumer Renews Call for Bush Administration to Allow GSEs to Help Ease Liquidity Crisis

Senator Helped Secure $100M For Housing Non-Profits To Prevent Foreclosures—Will Fight For Still More Resources From Private, Public Sectors

Schumer: We Cannot Afford a 'Wait and See' Approach When it Comes to the Health of Our H

As signs of distress continue to mount in the credit markets—with the nation’s largest lender, Countrywide, forced to draw from its emergency credit facility—Senator Charles E. Schumer today renewed his call on the Bush administration to immediately lift the portfolio cap on Fannie Mae and Freddie Mac to help ease the liquidity concerns in the mortgage markets. Schumer added that if Fannie and Freddie’s regulator doesn’t act soon to temporarily allow the companies to provide more liquidity, he will introduce legislation to do so as soon as Congress reconvenes in early September.

 

“We cannot afford a ‘wait and see’ approach when it comes to a credit crisis that threatens to derail our economy,” said Schumer. “The Bush administration continues to ignore one tell-tale sign after another that the subprime woes are threatening the broader mortgage markets. Fannie and Freddie are uniquely positioned to inject badly needed liquidity into the economy, but the President won’t let them do their job. These companies need their caps lifted now. If the Bush administration won’t act, we will.”

 

Last Tuesday, Senator Schumer wrote a letter to James B. Lockhart III, the director of the Office of Federal Housing Enterprise Oversight (OFHEO), urging him to consider temporarily raising the limit on purchases of home loans by Fannie Mae and Freddie Mac in response to increasing concerns of a credit crunch spilling into the broader mortgage market.  Raising the caps would allow Freddie and Fannie to provide much needed liquidity in a mortgage market that is drying up for all lenders—including Countrywide, the nation’s largest mortgage lender.

 

 

Since OFHEO rejected Schumer’s request to raise the portfolio caps last Friday, it has become increasingly clear that the deterioration in the mortgage markets has gone from bad to worse. Liquidity is virtually nonexistent for loans that do not conform to Fannie and Freddie’s portfolio standards (e.g., “jumbo” loans), which is hurting current and aspiring homebuyers’ ability to access lending.  Just this morning, Countrywide Financial Corporation, the largest U.S. residential mortgage lender, announced that it has been forced to draw on its $11.5 billion credit facility due to the drying up of liquidity in the secondary mortgage market.

 

 

News of Countrywide’s troubles coincided with new reports highlighting the dramatic decline in the U.S. housing market. Earlier today, the U.S. Commerce Department reported that in July, housing starts declined 6.1%, to their lowest level in a decade. Future building permits also fell, suggesting we are far from the bottom of the housing slump. These results, both substantially worse than the poor numbers experts had already anticipated, raise fears that the tumbling housing market is on the verge of dragging the broader economy down with it.

 

If the regulators do not take action to allow Fannie Mae and Freddie Mac to perform their critical role as market stabilizer, Senator Schumer plans to introduce legislation in September to temporarily raise the portfolio caps that are serving as impediments to the GSE’s ability to preserve liquidity in the market.  This emergency measure is not only important to restore confidence in the mortgage market for current and aspiring home buyers, but it would also allow Fannie and Freddie to engage in subprime foreclosure relief efforts across the country before the “October surprise” of subprime resets further shocks the mortgage markets. One trillion dollars worth of adjustable rate mortgages (ARMs) are due to reset between now and November of next year. Fannie Mae has estimated that 1.5 million subprime homeowners who face resetting ARMs and potential payment shocks this year and next would qualify for a safe, fixed-rate loan backed by the GSEs. 

 

“I am disappointed that the administration and the regulators have turned down the calls to consider temporarily raising the GSEs’ portfolio limits to provide market liquidity at a time when it is most needed to protect American families and the economy from further damage,” said Schumer.  “If these latest market developments do not motivate the administration to act, then I plan to introduce legislation in September that will allow us to use the critical tools we have through Fannie and Freddie to immediately address this crisis.”

 

Senator Schumer has been at the forefront of Congressional efforts to contain the subprime market crisis and ensure that irresponsible underwriting of this magnitude is not allowed to happen again.  In May, Schumer introduced the first major legislation to deal with unscrupulous lending practices this Congress, the Borrowers Protection Act, which would upgrade standards that mortgage brokers must abide by when making new loans to borrowers.

 

Schumer has also helped to secure $100 million in foreclosure prevention funding that was approved by the Senate Appropriations Committee for HUD Housing Counseling programs in the Transportation, Housing and Urban Development, and Related Agencies spending bill. With these funds, non-profit agencies will be able to provide individual counseling by working one-on-one with borrowers who are in unsuitable subprime loans. Schumer has vowed to continue fighting for additional resources from both the federal government and the private sector to equip foreclosure prevention groups working on the front lines to keep homeowners in their homes.

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