Incoming Democratic Majority Seeks Home Mortgage Reform
Democrats plan to use their new majority status in Congress to expand the home mortgage market for tens of thousands of buyers in Massachusetts and other states where high home are limiting use of government loan programs, the Boston Globe reports.
Rep. Barney Frank (D-Mass.) will become chairman of the House Financial Services Committee in January, and 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 companies chartered by the U.S. 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 urge the Democratic majority 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.
The idea never gained steam in the GOP-run Congress — not due to real opposition, but because it wasn’t a priority for the Republicans, who largely represent states with lower housing costs, said Representative Michael Capuano, a Massachusetts Democrat and colleague of Frank on the Financial Services Committee.
“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 Massachusetts mortgage applicants.
Fannie Mae and Freddie Mac, the commonly used names for the Federal National Mortgage Association and the Federal Home Mortgage Corporation, are secondary market 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.
The number of mortgages the two companies can buy are limited because they are in business to help low- and moderate-income home buyers. Because the Massachusetts real estate market — especially around Boston — is expensive, there are very few loans that would qualify for Freddie Mac and Fannie Mae’s programs.
In the Boston metropolitan area in 2005, Freddie Mac owned about 6 percent of the 79,000 conventional home mortgage 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.
Eric Gedstad, spokesman for the Massachusetts Housing Finance Agency, a 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 mortgages, although many borrowers might be unaware of the firms’ involvement in their loans. The companies do not make loans directly to buyers and are not subsidized by the U.S. 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 available to make other conforming home loans to buyers.
If Fannie and Freddie bought 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.
A few GOP lawmakers are ideologically opposed to expanding the home loan programs because they see it as a growth in the federal government. But Frank 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, the minority party as of 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 largely Democratic areas.