Frank seeks to broaden mortgage program

WASHINGTON -- Democrats plan to use their new majority status in Congress to expand the mortgage market for tens of thousands of home buyers in Massachusetts and other states where high housing prices are limiting use of federally regulated mortgage programs, according to Capitol Hill lawmakers.

Representative Barney Frank, a Newton Democrat set to become the chairman of the House Financial Services Committee in January, said he will aggressively push legislation to ease current restrictions on the amount of a mortgage that can be held by Fannie Mae and Freddie Mac, two private mortgage companies chartered by the federal government.

Current law sets a limit -- currently at $417,000 -- on the maximum amount of a housing loan held by Fannie Mae and Freddie Mac. But because home prices in Massachusetts are comparatively high, relatively few buyers can benefit from the programs, housing advocates said.

Frank said he will use his power as chairman to seek a change in the law to correlate the mortgage cap to the price of housing in an area, instead of a flat limit that now applies to all areas of the country.

The current rules "keep them from doing luxury housing in Nebraska," but severely limit opportunities for what would be considered middle-income homebuyers in Massachusetts, Frank said.

Senator Charles E. Schumer , a New York Democrat and a member of the Banking, Housing , and Urban Affairs Committee, will fight to include a similar provision on the Senate side, said Eric Schultz, his spokesman.

The idea never gained steam in the GOP-run Congress -- not because of serious opposition, but because it wasn't a priority for the Republicans, who largely represent states with lower housing costs, said Representative Michael E. Capuano, Democrat of Somerville and a colleague of Frank on the Financial Services Committee. But when the new Congress convenes in January, supporters of the measure expect it to move ahead.

"That's the difference between being in the majority and being in the minority," Capuano said, estimating that the change would help tens of thousands of buyers in Massachusetts alone.

Fannie Mae and Freddie Mac, the commonly used names for the Federal National Mortgage Association and the Federal Home Mortgage Corporation, are secondary mortgage companies that buy home loans from banks and other lenders. That, in turn, frees up cash to allow primary lenders to provide mortgages to more customers, said Eileen Fitzpatrick , a Freddie Mac spokeswoman.

The number of mortgages the two companies can buy are limited because they are in business to help low- and moderate-income home buyers, she said. Because Massachusetts housing -- especially around Boston -- is so expensive, "there are very few [loans] that would qualify" for Freddie Mac and Fannie Mae's programs, she said.

In the Boston metropolitan area in 2005, Freddie Mac owned about 6 percent of the 79,000 conventional home loans that originated in the area, Fitzpatrick said. Statistics indicate that Freddie Mac helps approximately 17 percent of home buyers nationwide get mortgages, she said.

Aaron Gornstein , executive director of the Boston-based Citizens Housing and Planning Organization, said the proposal "would certainly expand home ownership opportunities for more Massachusetts residents." The median price for homes in Massachusetts is $350,000, but well over $400,000 in the Boston area, he said.

Eric Gedstad , spokesman for the Massachusetts Housing Finance Agency, a quasi-public agency that lends money to low- and moderate-income home buyers, said the agency supports Frank's bill. "It [would] really help a growing population of people with modest incomes, [and] two-income working families," Gedstad said. "It's a good, solid idea for the middle-class and middle-income home buyers who are struggling with housing in high-cost areas."

Freddie Mac and Fannie Mae play a prominent role in home mortgages, although many borrowers might be unaware of the firms' involvement in their loans.

The companies do not make loans directly to buyers and they are not subsidized by the federal government. Instead, they buy loans from banks and other lenders, package them in the form of securities, and sell that financial instrument to investors. The process allows banks to replenish the cash they have available to make other loans to additional home buyers.

If Fannie Mae and Freddie Mac purchased more mortgages in Massachusetts, all potential buyers would benefit, Gedstad said, since it would free up primary lenders to offer more loans across the economic spectrum.

Frank noted that other housing programs, such as Section 8 housing for the poor, are weighted to accommodate the dramatically different costs of housing in different areas. In the case of the Fannie Mae and Freddie Mac loans, "we treat housing as if there were only one price, when in fact there are hundreds across the country."

The House this year approved legislation that would increase the cap on mortgages backed by the Federal Housing Administration, but the measure is being held up because of a disagreement over unrelated provisions in the bill. Frank said he will push next year to make FHA-backed loans also correspond to differing housing costs across the country.

A spokeswoman for Representative Michael G. Oxley , an Ohio Republican and outgoing chairman of the House Financial Services Committee, had no comment on the legislation.

Frank said the legislation would not cost the federal government anything, since Fannie Mae and Freddie Mac are private entities.

A few GOP lawmakers are ideologically opposed to expanding the loans programs because they see it as a growth in the federal government, Frank said.

But he said the change in formula -- which would not lead to lower caps for other parts of the country -- would not cause an outcry from the GOP, which will become the minority party next month.

While the mortgage cap was never a pure partisan issue, the GOP wasn't very interested in it since it largely hit potential home buyers in places such as New York City, Boston, and California -- all areas represented by Democrats, Capuano said.

"The kind of people most seriously impacted do not live in Republican-dominated districts. This kind of a bill impacts mostly the older, urban areas," Capuano said. But the new proposal "doesn't hurt anybody" and has a good chance of passing, he said.