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Thanks to Fannie and Freddie, Housing Bailout Debate Trending Our Way

Posted By Conn Carroll On July 17, 2008 @ 11:51 am In Ongoing Priorities | Comments Disabled

The Washington Post makes a great case today for separating the left’s long sought housing bailout bill [1] with the more pressing debate over long term reform for Fannie Mae and Freddie Mac They write today [2]:

Democratic leaders in Congress plan to attach the Fannie-Freddie rescue to housing legislation already passed by the Senate and slated for House consideration. Strangely, though, both the Senate and House versions of the bill potentially increase the very risks Mr. Paulson’s plan is intended to mitigate.

Both measures would encourage Fannie Mae and Freddie Mac to buy bigger mortgages on the secondary market … the pending Senate and House bills impose permanent increases. The Senate would go up almost 50 percent, to $625,000. The House, led by Speaker Nancy Pelosi (D-Calif.), who represents the pricey San Francisco Bay Area, is considering a $730,000 cap. Either way, Congress would be authorizing the GSEs to pile more risk onto their already staggering balance sheets, and mostly for the benefit of buyers and sellers of expensive houses.

There’s more. The core of both the Senate and House bills is a proposal to help subprime borrowers refinance into affordable government-backed loans — provided that both they and their lenders absorb some losses. The plan could assist up to 400,000 homeowners over three years, at a cost of $1.7 billion, according to the Congressional Budget Office. Yet the Senate bill would fund the bailout through a fee on Fannie and Freddie, possibly $531 million in 2009, the CBO says. . This … contradicts the purpose of the mortgage bailout, which is to shore up housing prices: Fannie and Freddie will pass the fee along to their customers, thus decreasing housing liquidity and depressing the residential real estate market.


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URL to article: http://blog.heritage.org/2008/07/17/thanks-to-fannie-and-freddie-housing-bailout-debate-trending-our-way/

URLs in this post:

[1] the left’s long sought housing bailout bill: http://www.foundry.org/2008/06/24/morning-bell-what-is-the-worst-part-of-this-bill/

[2] They write today: http://www.washingtonpost.com/wp-dyn/content/article/2008/07/16/AR2008071602464.html

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