If home prices continue to fall, 2 million subprime mortgages could end up in foreclosure from 2007 through 2009, according to a report by Democrats who want to allow Fannie Mae and Freddie Mac to buy more mortgages.
The report, issued by Joint Economic Committee Chairman Sen. Charles Schumer and other Democrats, estimated that $71 billion in wealth could be lost through foreclosures, and that the spillover effect of foreclosures could reduce the value of neighboring properties by more than $32 billion.
As a result, state and local governments stand to lose more than $917 million in property tax revenue, the report said.
The report — “The Subprime Lending Crisis — The Economic Impact on Wealth, Property Values and Tax Revenues, and How We Got Here” — recommends increasing the Federal Housing Administration’s ability to insure subprime mortgages, raising the loan portfolio limits of Fannie Mae and Freddie Mac, amending the bankruptcy code to help troubled borrowers keep their homes, and strengthening laws targeted at predatory lending practices.
While the Bush administration has made increasing FHA loan guarantees a central part of the government’s response to rising delinquencies and foreclosures, it has opposed large increases to limits on Fannie and Freddie’s loan portfolios, which are currently allowed to grow at 2 percent per year.
Schumer, D-N.Y., introduced legislation on Oct. 16, SB 2169, which would allow a temporary 10 percent increase in the government-sponsored entities’ (GSEs) loan portfolios. Rep. Barney Frank, D-Mass., is sponsoring similar legislation in the House.
House Democrats on Monday introduced an anti-predatory-lending bill, HR 3915, that would require licensing of all mortgage originators and set new minimum standards for loans. The bill was the subject of a hearing before the House Financial Services Committee Wednesday, where industry groups challenged some of its provisions as overly restrictive.
A bill that would allow federal bankruptcy courts to modify the terms of a mortgage loan for a debtors’ principal residence, HR 3609, is stalled in the House Judiciary Committee.