California Rep. Dennis Cardoza has announced legislation to stabilize the foreclosure crisis through the federal government’s conservatorship of Fannie Mae and Freddie Mac with support of two of the nation’s leading economists, Columbia Business School Senior Vice Dean Christopher Mayer and Moody’s Analytics Chief Economist Mark Zandi. The Housing Opportunity and Mortgage Equity (HOME) Act would use the federal government’s conservatorship and backing of Fannie and Freddie mortgages to secure the current low market rates for longer fixed terms.
Mortgages currently held by Fannie Mae and Freddie Mac that meet the basic criteria will also qualify for the opportunity to refinance without penalty fee barriers. To fund the program, Fannie and Freddie would issue new mortgage-backed securities (MBS) to fund the refinanced mortgages and use the proceeds to pay off the existing mortgages. Fannie and Freddie would receive the same cash flow to cover default risk that they do now, passing along the reductions in financing costs to borrowers.
The proposed legislation would impact nearly 30 million mortgages held or backed by Fannie and Freddie. The HOME Act would allow for refinances of 30-year, fixed-rate mortgages at the current record-low rates in the 4.4 percent range for anyone seeking to refinance a government-backed loan.
“With mortgage rates near record lows, the quickest and most effective way policymakers can help the economy is to facilitate more mortgage refinancings,” said Zandi. “The HOME Act does this at little or no cost to taxpayers.”
The HOME Act would also help stabilize the housing market by decreasing the inventory of foreclosed homes and reducing declines in property values from issues surrounding blight and abandonment. At the same time, those with mortgages backed by Fannie and Freddie would have additional disposable income, providing a direct economic stimulus.
“No solution to date has addressed both foreclosure prevention and the decline of home equity. The reality is the housing crisis has spread far beyond the subprime market, hindering our economic recovery,” said Rep. Cardoza. “None of the Administration’s current housing programs have been far-reaching enough to make a dent in the worst foreclosure crisis in U.S. history. Until we see a program that cuts to the heart of the recession, we will continue to see little growth in our economy, families losing their homes and lifetime investments with lost equity.”
The legislation was initially introduced in January 2009. It has been modified based on new input received from leading economists and the House Financial Services Committee. It also reflects changes in the housing market. It was reintroduced with contributions from Mayer and Zandi. The proposal has gained increased interest as more economists realize that measures aimed at addressing the foreclosure meltdown have not been sufficient.
“If we allow housing to go into a free fall, everyone loses: Taxpayers will have more bailouts, homeowners will watch their homes continue to decline in value, local communities will struggle to fund their schools. Everyone loses,” said Mayer. “Housing is an important part of what is holding back the economy. The government has a chance to help housing without harming the deficit. We should take it.”
House Majority Leader Rep. Steny Hoyer and Democratic Caucus Chair Rep. John Larson have both offered praise for Congressman Cardoza’s work on the foreclosure issue.
“Representative Cardoza is a leader on the importance of ending the foreclosure crisis facing Americans,” said Rep. Hoyer. “In addition to addressing the needs of his constituents, who are at the epicenter of the crisis, he is a fierce advocate for affected families throughout the country and his focus on this issue supports our efforts to keep the economy moving forward.”
Rep. Larson said that keeping families in their homes is vital to the nation’s economic recovery and the right thing to do: “I commend my colleague for his hard work on this issue and look forward to working with him to move this forward."
“The Obama Administration’s economic team will soon have new top advisors and I believe it is critical that we push forward and finally pursue genuine solutions to this problem," said Rep. Cardoza. "We must restore Americans’ faith in the economy and that starts by ensuring their faith in homeownership.”
