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Democrats force Fed to change approach
 Federal regulators appear to be shifting tack following intensified criticism from Democrats on Capitol Hill over their handling of the mortgage crisis.Ben Bernanke, chairman of the US Federal Reserve, indicated government-backed lenders could play a limited role in alleviating stress in the so-called jumbo mortgage market. The Office of Federal Housing Enterprise and Oversight also provided increased flexibility to Fannie Mae and Freddie Mac to provide greater assistance to subprime borrowers and others who may have difficulty refinancing their existing mortgages in the current environment. Senator Charles Schumer told the Financial Times that pressure from Democrats was finally starting to stir the administration from its slumber. We seem to be getting through. Hank Paulson, Treasury secretary, and Mr Bernanke will testify on Thursday to the House of Representatives financial services committee on their response to the mortgage meltdown. In a letter circulated on Wednesday in Washington, the Fed chairman suggested that if Democrats planned to press ahead with proposed increases in the $417,000 limit on the value of government-backed mortgages, then this should only be temporary. If the Congress is inclined to move in this direction, it should consider whether such action could be taken in a way that makes the change explicitly temporary as well as promptly implemented, he said. Mr Bernanke noted recent significant disruptions in the jumbo loan market in a letter to Barney Frank, chairman of the House committee. But Mr Bernanke warned that entrance of government-backed lenders into this mortgage bracket could distort competition as credit markets returned to normal. James Lockhart, head of Ofheo, also told the FT this week that he was open to raising loan limits in some cases. David Rosenberg, an economist at Merrill Lynch, said raising the so-called conforming loan limit would reduce the burden on borrowers, particularly those in states with high real estate values such as New York, Florida and California, and help inject some liquidity in the secondary mortgage market. Interest rates spreads on jumbo mortgages have increased five-fold in many cases. Posted by: lotp 2007-09-20 |
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