WASHINGTON— The head of the federal agency that oversees Fannie Mae and Freddie Mac said Tuesday the regulator would keep loan limits for the two mortgage lenders at current levels ranging from $417,000 to $801,000.
Maintain, reduce and build were the elements outlined by Federal Housing and Finance Agency Director Mel Watt as a strategy for managing the conservatorship of Fannie Mae and Freddie Mac.
The two government-sponsored enterprises were created to expand the secondary mortgage market by selling mortgage-backed securities, thus allowing more mortgage lending and new home purchases.
But the United States Treasury placed Fannie Mae and Freddie Mac into conservatorship of the federal government during the 2008 financial collapse due to the subprime mortgage crisis. The companies sold packages of high-risk, subprime mortgages to people with poor credit that drastically increased the chance of default.
As part of its new strategic plan, the FHFA would continue to help borrowers in danger of losing their homes and improve liquidity in the single-family housing finance market.
The housing finance agency will soon launch a Neighborhood Stabilization Initiative to help communities hardest hit by the foreclosure crisis. A pilot program is to established in Detroit, Mich.
“Experiences in recent years have revealed serious weaknesses in the servicing industry and in the foreclosure prevention alternatives offered to borrowers. We’re pursuing pre-foreclosure and post-foreclosure strategies that include deeper loan modifications,” Watt said in a speech at the Brookings Institution.
Secondly, the FHFA will bring additional private capital into the mortgage market.
“This includes having Fannie Mae and Freddie Mac conduct additional credit risk transfers for their single-family credit guarantee business,” Watt said. “These transactions have opened up private capital to share in credit losses, which protects taxpayers from bearing all the potential losses.”
The strategic plan also seeks to shore up the secondary mortgage market as a way of reducing the footprints of Fannie Mae and Freddie Mac, which will provide more liquidity in the housing finance markets.
Under current conditions, Watt said Fannie Mae and Freddie Mac will continue to be under conservatorship.
“Housing finance is such a critical part of the economy,” Watt added. “To stop or stand in place just simply is not an option. We’ll continue it and I think our goals are consistent with continuing the operation of Fannie and Freddie in the year and out. We’ll do that until there is legislation passed.”
The government-controlled firms, Fannie Mae and Freddie Mac, have been criticized for posting record-high profits, but Watt said those numbers aren’t sustainable.
“We’re trying to increase the availability of credit to creditworthy borrows, in a safe and sound way and not be irresponsible,” Watt said. “I don’t think looking at bottom line is a productive way to try to evaluate how we perceive.”
A number of experts participated in a panel discussion following Watts’ speech called the strategic plan a positive step towards a recovery in the housing market.
“The GSEs have provided and created a liquid and amazingly efficient and standardized market,” Mark Fleming, chief economist of CoreLogic, said. “We want to keep the good and address the bad.”
The speech at Brookings marked Watts’ his first public remarks as the director of the Federal Housing Finance Agency.