WASHINGTON (AP) - Senators on Thursday said Fannie Mae and Freddie Mac should play a bigger role in helping struggling homeowners even as they called for tighter oversight of the government-sponsored mortgage finance companies.
At a hearing of the Senate Banking Committee, its chairman Sen. Christopher Dodd, D-Conn., said the two companies need to do more to help homeowners with high-priced loans refinance into more affordable mortgages. Lenders also stand to benefit from the fees generated by this increased activity.
The economic stimulus packages passed by the House and pending in the Senate include provisions raising for one year the cap on mortgages that Fannie and Freddie may buy in high-cost areas from $417,000 up to $729,750, a move intended to stimulate new loans and refinancing activity in markets such as California and the Northeast.
But in return for allowing Fannie and Freddie to buy the higher-priced mortgages, Sen. Charles Schumer, D-N.Y., said the companies should agree to finance troubled lower-income borrowers.
Dodd said the committee is poised to write legislation that would tighten the government's reins on Fannie and Freddie, giving a new regulator authority to limit their multitrillion-dollar mortgage holdings. A bill doing that passed the House last spring but the Senate has not yet acted.
The two companies were created by Congress to pump money into the home-mortgage market by buying home loans from banks and other lenders and bundling them into securities for sale on Wall Street. Together they hold or guarantee about $4.9 trillion in home-mortgage debt. Fannie and Freddie lost $1.4 billion and $2 billion, respectively, in last year's tumultuous third quarter.
The Bush administration and congressional Republicans have long been critical of how Fannie and Freddie operate. Officials have pointed to the companies' multibillion-dollar accounting scandals in recent years to bolster their case that Fannie and Freddie's massive mortgage holdings are improperly managed and pose a risk to the financial system.
James B. Lockhart, director of the Office of Federal Housing Enterprise Oversight — the agency that oversees Fannie and Freddie — told the panel that the loan limits should not be raised without also providing stricter government regulation of the companies.
Freddie's chairman and CEO, Richard Syron, said in testimony prepared for the hearing that the company last year helped around 47,000 borrowers avoid foreclosure last year by refinancing them into lower-interest loans. Fannie President and CEO Daniel Mudd said the company has aided 68,000 homeowners.
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