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Buying a home may get tougher
Sacramento Bee


April 21, 2005

Fannie Mae and Freddie Mac, the nation's two biggest mortgage purchasers, are facing proposed regulations that some fear could make it harder for many Americans to buy their first homes.

Once seemingly untouchable because of their political clout, the congressionally chartered companies find themselves up against the ropes in Congress after recent accounting scandals. Fannie Mae and Freddie Mac buy or guarantee nearly half of all U.S. home loans, providing a steady flow of money for mortgage writers. Their financial health is viewed as key to the housing market and the overall economy.

While there's widespread support on Capitol Hill for stronger regulation of Fannie Mae and Freddie Mac, some real estate industry and minority advocacy groups are concerned the legislation could make home loans more expensive and curtail outreach into minority and lower-income neighborhoods.

They contend the legislation, as now written, could limit the size of Fannie Mae and Freddie Mac, stifle their lending innovations and reduce the amount of consumer education on home buying.

"There's a whole strata of American society for whom the door to homeownership has been nailed shut for generations," said Scott Syphax, head of Sacramento-based Nehemiah Corp. of America, a nonprofit organization that uses down payment assistance and other programs to boost homeownership. "We've only started to crack that door open within the last decade, and now, if people aren't careful in this rush to judgment, we could slam the door of opportunity shut for another generation."

Syphax is concerned about talk of limiting the growth of Fannie Mae and Freddie Mac. The two have played a crucial role in creating more creative and flexible home financing, such as by allowing for more ways to document creditworthiness. The changes have helped boost U.S. homeownership in recent years to a record 69 percent.

Shrinking the two companies, Syphax said, "may end up being the equivalent of limiting innovation, and it's innovation that's opened the promise of homeownership to so many minority and first-time home buyers in this country."

Nationally, whites have a homeownership rate of 76 percent of households, while the rate drops to 50 percent for African Americans and 47 percent for Latinos, according to research by the University of Southern California that reflects the second quarter of 2004.

The National Association of Realtors and five other major industry groups have urged Senate banking committee members in a letter to "refrain from considering legislation that would jeopardize the vibrancy, liquidity and evolution of the housing finance system."

In a separate letter, the National Association of Hispanic Real Estate Professionals expressed support for "a strong, credible regulator that will restore market confidence in (Fannie and Freddie)." But the group said it believes some proposals "could negatively impact the industry's capacity to increase homeownership rates among Latinos for years to come."

The main focus of the group's concern is a bill by Republican senators Chuck Hagel of Nebraska, Elizabeth Dole of North Carolina and John Sununu of New Hampshire. It would create a new regulator for the nation's three "government-sponsored enterprises" - Fannie Mae, Freddie Mac and the Federal Home Loan Banks _ and ensure they stay focused on what Hagel says is their original mission: providing stability in the secondary (mortgage) market. The current regulator, the Office of Federal Housing Enterprise Oversight, would be replaced by a new Federal Housing Enterprise Regulatory Agency.

In the House, a similar bill has been introduced by Rep. Richard Baker, R-La., chairman of the subcommittee overseeing Fannie Mae and Freddie Mac.

Most controversial so far is the so-called "bright-line" provision in the Hagel bill. It would give the new regulator authority to distinguish between Fannie Mae's and Freddie Mac's primary and secondary market activities and decide if any activities aren't key to the companies' core mission of ensuring stability in the secondary mortgage market.

The primary market comprises everything related to a home loan prior to its being closed and funded, whereas the secondary market is everything that happens after closing, including the purchase of that mortgage by Fannie Mae or Freddie Mac.

The Hagel bill also authorizes the new regulator to establish standards for the amount of assets in the portfolios of the three government-sponsored enterprises. The portfolios are made up of home mortgages and other investments, including some that have been criticized as having nothing to do with fostering homeownership.


Distributed by Scripps Howard News Service,

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