Important Progress on the Credit Crunch
Following adoption of comprehensive policy by the NAHB Board of Directors on Sept. 8 calling on the Federal Reserve Board, the Administration, Congress and federal regulators to take prompt action to address further erosion in housing and prevent a full-blown economic recession, significant steps were taken in Washington this week to stabilize the financial markets, restore the mortgage markets to health and develop solutions to the subprime and foreclosure problems.
Washington policymakers have responded to our concerns in several ways in recent days. The Fed has cut interest rates, FHA reform is moving through Congress and federal regulators are providing Fannie Mae and Freddie Mac more flexibility to address the subprime crisis. These developments are important first steps in our battle, and NAHB will continue to work for further improvements until balance is restored in the housing markets.
In the weeks leading up to the Fed's announcement that it would cut interest rates, NAHB's Economics team provided Chairman Bernanke with regular updates on the health of the housing sector, and the need to act decisively to bolster housing and the economy. On Sept. 18, the Fed announced that it was cutting its federal funds and discount rates by one-half of a percentage point, sending a strong signal to the financial markets and consumers that it intends to keep the economy moving forward, which is key to stabilizing housing. In a press release lauding the move, NAHB said that the Fed's decision to lower borrowing costs is good news for consumers looking to buy a home.
Progress on the Regulatory Front
On the regulatory front, the Office of Federal Housing Enterprise Oversight (OFHEO), regulator of Fannie Mae and Freddie Mac, announced Sept. 19 that it would allow the GSEs to raise their portfolio limits by 2% annually so they can invest more than $20 billion in subprime mortgages. Though this is a positive step forward, it falls short of what we asked for and what we believe is needed. NAHB has been pushing -- and continues to push -- for OFHEO to allow both Fannie and Freddie to raise their portfolio cap by 10% to buy more subprime loans, to help keep borrowers from foreclosure and to keep mortgage money flowing.
In testimony before the House Financial Services Committee on Sept. 20, Treasury Secretary Henry Paulson said that the Bush Administration would consider allowing Fannie Mae and Freddie Mac to temporarily purchase home loans above the conforming limit of $417,000 as part of broader legislation to reform the two housing government-sponsored enterprises (GSEs). The media picked up on this statement, because up to this point the Administration has staunchly opposed raising the conforming loan limits for Fannie and Freddie. NAHB has adopted policy urging Congress to pass legislation already approved by the House that would strengthen the regulatory oversight of Fannie and Freddie and allow them to purchase loans that exceed the conforming loan limit in high-cost markets.
Earlier this week, the Federal Home Loan Bank of Des Moines announced that it would include single-family construction loans as eligible collateral member loans. In a statement applauding the bank, NAHB President Brian Catalde said that by adding construction loans to its collateral menu, the Des Moines Federal Home Loan Bank "has shown outstanding responsiveness to the credit needs in its district. This collateral expansion is an important signal that the Des Moines Bank is making every reasonable effort to support the home mortgage lending of its member institutions, in addition to establishing a long-term foundation for housiing production credit availability."
House Approves FHA Reform
The good news kept coming in this week with the House approval of an important FHA reform bill that included an NAHB-supported amendment offered by Reps. Barney Frank (D-Mass.), Gary Miller (R-Calif.) and Dennis Cardoza (D-Calif). This amendment would enable more creditworthy borrowers to purchase an FHA-insured home in many high-cost metropolitan markets. A companion bill was approved by the Senate Banking Committee on Sept. 19, where the real challenge is to move this legislation quickly. NAHB will be pushing hard to get this legislation to the Senate floor as soon as possible. For more on the House bill, see our statement.
The House Ways and Means Committee is also considering a change to the tax laws to eliminate any tax penalties home owners might face when banks negotiate the terms of a home loan and forgive a portion of the outstanding mortgage debt. This legislation is one of the policy provisions approved at our board meeting in Seattle, and we will continue to urge lawmakers to promptly move this bill forward.
A United Advocacy Effort
In recent weeks, NAHB's lobbying team has been continually meeting with leading members of Congress in the effort to pass legislation modernizing FHA mortgages and reforming the housing GSEs so they can play a larger role in restoring stability in the mortgage markets. We've placed ads in influential publications on Capitol Hill (picture above) and conducted major media outreach efforts to get our messages heard. In fact, during the past few days alone, NAHB has appeared or been quoted in more than 50 major print, broadcast and wire outlets across the country, including USA Today, The Wall Street Journal, The Washington Post, Associated Press, Reuters, Dow Jones, The Seattle Times, the Dallas Morning News, the Atlanta-Journal Constitution, San Francisco Chronicle, St. Louis Post-Dispatch and The Philadelphia Inquirer, to name just a few.
Clearly, we still have a long way to go to restore health to the nation's mortgage markets and the overall housing industry, and there is no "quick fix" to the crisis at hand. In the weeks ahead, NAHB, its leaders and staff will continue to work tirelessly on behalf of our members toward steady progress and an eventual resolution to the challenges that lie ahead.
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