Seeking to boost the economy by making mortgages cheaper and easier to get, the government said Wednesday that it would further ease the reins on Fannie Mae and Freddie Mac. The move is intended to make as much as $200 billion in additional money available for newly issued home loans.
But some experts said the action would do little to boost the housing market or help homeowners who were struggling with their mortgages and were unable to refinance.
For The Record
Los Angeles Times Saturday, March 22, 2008 Home Edition Main News Part A Page 2 National Desk 1 inches; 59 words Type of Material: Correction
Mortgage funding: An article in Business on Thursday about a regulator's decision to ease capital requirements on Fannie Mae and Freddie Mac said the Federal Housing Administration would start buying large mortgages. The FHA insures mortgages but doesn't buy them. The agency soon will insure home loans for as much as $729,000 in high-cost areas such as Southern California.
The federal regulator of Fannie and Freddie, which buy home loans and guarantee bonds backed by mortgages, said it was reducing their required capital cushion against losses. The move could stimulate home purchases or refinances within a month or two, executives at the government-sponsored firms said.
The action by the Office of Federal Housing Enterprise Oversight followed steps taken by the Federal Reserve and the Bush administration to stabilize the financial system and jump-start the moribund housing and mortgage markets.
Joshua Rosner, managing director at investment research firm Graham Fisher & Co., told investors in an e-mail that the steps showed "the burgeoning panic in Washington."
"Within the past 48 hours we have seen the administration decide to throw out all the rules in the rule book," Rosner said.
Experts said the latest moves might embolden some lenders to make more 30-year fixed-rate loans by giving them confidence that Fannie and Freddie would have the capacity to buy them. Most banks won't keep long-term mortgages on their own books because they can lose money on the loans if interest rates rise.
However, the actions don't address the threat to the economy posed by millions of homeowners with adjustable-rate loans who have little or no home equity, don't earn as much as their loan applications indicated or both.
"We are finding that folks really did misrepresent their income to get into a house or to get money out of a house they already owned," said Babette E. Heimbuch, chairwoman and chief executive of FirstFed Financial Corp., parent of First Federal Bank of California, a Santa Monica-based adjustable-rate lender.
"So they won't qualify for the loan they now need," she said. "In essence if they refinanced their house and are now losing it to foreclosure, they actually sold their house to the bank for more money than they could get in the market for it today."
