FOR IMMEDIATE RELEASE: October 11, 2007
Schumer To Offer New Legislation Expanding Fannie Mae's And Freddie Mac's Ability To Refinance Families On Brink Of Foreclosure
Strengthened Measure Would Lift GSEs' Portfolio Caps By 10 Percent for Six Months—With 85% of Increase Devoted to Subprime Refinancings
Rep. Frank Expected to Introduce Companion Measure in the House; Senator Plans to Attach Measure to First Available Bill To Achieve Swift Passage
WASHINGTON, DC—U.S. Senator Charles E. Schumer (D-NY) today unveiled new legislation that would significantly enhance Fannie Mae’s and Freddie Mac’s ability to facilitate refinancings for U.S. homeowners on the brink of foreclosure. A companion measure was also expected to be introduced in the House today by U.S. Rep. Barney Frank (D-MA). Schumer said he planned to attach the Senate version to the first available legislative vehicle.
The new legislation strengthens a proposal first offered by Schumer in August and comes on the heels of a series of meetings Schumer has convened with Fannie Mae, Freddie Mac, and the pair’s regulator, the Office of Federal Housing Enterprise and Oversight (OFHEO). The bill would unleash approximately $150 billion in private-sector funds for foreclosure prevention by temporarily lifting the limits on the mortgage portfolios held by the two government-sponsored enterprises (GSEs). Under the bill, those limits would be lifted by 10 percent for six months, with 85 percent of the increase (approximately $125 billion) required to fund refinancing of subprime borrowers.
“This bill provides a lifeboat for the millions of homeowners left stranded by the Bush administration amid a sea of subprime turmoil,” said Schumer, the Chairman of the Joint Economic Committee and the Senate Banking Subcommittee on Housing. “The interest rates on two million home loans are due to increase radically, but the President won’t adjust his radical ideology. But that doesn’t have to be the last word now that Democrats in Congress are coming together to take steps the administration won’t.”
The planned introduction of the cap-lifting measure makes good on one promise made by House and Senate Democrats last week. As part of a comprehensive agenda to stem the foreclosure crisis, Schumer, Frank and other Democrats also proposed a substantial increase in federal aid to housing nonprofits that perform homeowner counseling for at-risk borrowers. The Senate has already included $200 million in such aid in the Housing and Urban Development appropriations bill that passed in that chamber last month.
Schumer’s responsiveness stands out against the backdrop of the Bush administration’s inaction. President Bush has consistently opposed a meaningful cap lift for the GSEs’ portfolios on ideological grounds. Even as the mortgage market crisis has threatened to spill over into the broader economy, the administration has balked at any portfolio increase beyond a modest two-percent hike announced in September. Schumer has publicly expressed that the two-percent increase does not match the magnitude of the subprime mortgage crisis. Nor was it specifically designed to target struggling subprime borrowers. In contrast, the Schumer bill will providing meaningful relief for the hundreds of thousands of American homeowners whose monthly mortgage payments are set to jump to unaffordable rates before February 2008, the date that OFHEO has publicly set as a possible target for removing the portfolio caps altogether.
Since 2005, the number of subprime loans originated has more than doubled. In 2001, $120 billion in subprime loans were originated, about 5.4 percent of the total mortgages originated that year. By 2005, this number had risen to $625 billion, about 21 percent of the total. By the end of 2006, an estimated 6.7 million subprime loans remained outstanding, representing $1.2 trillion in outstanding debt. It is estimated that at least one in five of these subprime loans will end in a lost home.
Over the next two years, an estimated 2 million homeowners with subprime adjustable rate mortgages (ARMs) will experience their first payment shock as their loans reset in a weakening housing market, a harbinger of more foreclosures to come.
Market experts estimate that up to 40 percent of current subprime borrowers could now qualify for prime, fixed rate loans, making the crisis one that could be curtailed by strong efforts to refinance borrowers. Not only will such efforts save hundreds of thousands of families from losing their homes, it will also prevent further damage to the already weak housing market and protect the broader economy.