WASHINGTON - Senator Charles Schumer yesterday proposed two government-sponsored mortgage giants be allowed to increase their role in the home loan market as a stabilizing force for the troubled mortgage industry.
The New York Democrat wants Congress to allow
Schumer's legislation is aimed at easing a credit crunch that is worsening the housing market's woes. He wants half the money to refinance existing loans and half to fund new mortgages.
The Federal Deposit Insurance Corp. estimates 2.5 million mortgages made to borrowers with weak credit will reset at sharply higher rates by the end of 2008.
Lenders might make new loans or refinance existing ones, knowing they can sell the loans to Fannie and Freddie, which have not yet been stung by soaring defaults on subprime loans made to borrowers with risky credit.
As investors turn away from mortgage-backed bonds, Schumer said, loans held by Fannie and Freddie "are the only mortgages that are trusted right now."
Schumer also proposed raising the price limit for home mortgages that Fannie and Freddie can buy to $625,500 in some areas from $417,000.
The White House is opposed to lifting the caps at Fannie and Freddie, currently at $727.7 billion and $728.1 billion, respectively - with the ability to grow by 2 percent a year.
Officials at Fannie and Freddie back Schumer's proposal, but the Bush administration argues that without increased supervision of the government-sponsored enterprises, raising the caps could threaten the financial system's stability.
In a letter to Schumer released yesterday, James B. Lockhart, director of the Office of Federal Housing Enterprise Oversight, said Fannie and Freddie's regulator would "reevaluate circumstances, including the caps on mortgage portfolios, as necessary."