Frank says Fannie, Freddie profits

Frank says Fannie, Freddie profits can fund affordable housing You may or may not agree with everything that comes out of his mouth (does the federal government's response to Hurricane Katrina amount to "ethnic cleansing by inaction"?), but you gotta admit Barney Frank speaks, well, quite frankly. Addressing members of the National Press Club this week, the incoming chairman of the House Committee on Financial Services said affordable housing is his top priority. Instead of putting arbitrary limits on Fannie Mae and Freddie Mac's lending portfolios, he said, the government should take a 5 percent cut of their profits and use it to build affordable housing. Frank also wants to raise the limit for FHA-backed mortgages to generate revenue that would subsidize mortgage insurance for low-income homebuyers.

Bush administration officials have said Fannie and Freddie's portfolios are dangerously overextended, and pose a "systemic risk" to financial markets. But Frank said the push for tighter limits on Fannie and Freddie's portfolios -- the issue that stalled Senate approval of a GSE reform bill last year -- is more about ideology than avoiding risk.

"What blocked it last year was the insistence on some economic conservative fundamentalists in the Bush administration who, to be honest, don't think there should be a Fannie Mae or a Freddie Mac," Frank said.

It's better to let Fannie and Freddie keep loans in their portfolio than to sell them in the secondary market, Frank said, because if those loans go bad, the government can ask the GSEs to work with borrowers to avoid foreclosure.

"If you sell all of this mortgage stuff into the secondary market, forget about forbearance," Frank said. "The secondary market can't do forbearance. Forbearance -- allowing people who are in trouble a little extra time -- can only come from an entity that holds those mortgages. I can ask Fannie Mae and Freddie Mac to show forbearance. I can go ask the secondary market to do it, and they won't pay any more attention to me than Dick Cheney does."

Frank said the House could pass a GSE reform bill before Easter.
--Matt Carter, Inman News

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