The housing crisis is eroding the confidence of our nation’s homeowners, financial institutions, and investors at an accelerating rate. Americans are growing anxious that the equity they’ve paid into their homes may not provide the financial security that home ownership once guaranteed. Worst of all, nearly 1.9 million borrowers across the nation – more than 50,000 of them in Texas – who have filed for foreclosure on their homes this year live with diminished hope that their own symbol of the American dream will be realized.
The Federal National Mortgage Association (Fannie Mae) and the Federal Home Loan Mortgage Corporation (Freddie Mac) each have similar roles in the home mortgage market. They buy mortgages from primary lenders – like banks – which make additional funds available to those banks to lend to other potential homeowners.
Fannie and Freddie were created by Congress specifically to make home ownership affordable and attainable for low- and middle-income Americans. Since 2000, Freddie Mac has provided $821.6 million in low-cost mortgages to Texas families. And as of May 2008, Fannie Mae has purchased over a million home mortgages in our state. Across the nation, Fannie and Freddie own or guarantee $5.2 trillion in home mortgages – almost half of all outstanding mortgages in the U.S. Because current regulation requires each firm to have a financial cushion of cash or securities, plummeting investor confidence is the basis for the current climate of crisis.
Economists of all philosophies agree that the collapse of Fannie or Freddie would have a devastating impact on the U.S. housing market and further damage an already-fragile U.S. economy.
Concerns about their viability have reinvigorated Congressional efforts to pass a sweeping housing bill addressing the core issues of the financial crisis.
Central to the legislation are long-overdue reforms, which establish a new, independent entity to regulate Fannie, Freddie, and the 12 Federal Home Loan Banks that were set up after the Savings and Loan crisis of the 1980s. The new entity will have the authority to set capital standards and establish prudent management practices. These provisions are designed to ensure the safe and sound operation of Fannie and Freddie and better prepare them to weather unforeseen market challenges that may arise in the future.
The new rules will try to ensure that lenders do not entice people who are unable to make the payments to take on too much debt by requiring a minimum down payment. The legislation also raises the limit on the size of a mortgage, allowing families in high-cost areas of the country to access homeownership with fixed rate mortgages rather than exotic subprime loans. To spur home ownership, the bill includes a refundable first time homebuyer tax credit. Additionally, the package extends tax relief by allowing owners who do not itemize deductions on their tax returns to claim an additional standard deduction for the amount they pay in local property taxes, up to $1,000.
Since March 2008, my office has responded to letters, emails, and phone calls from more than 5,000 Texans who are anxious about rampant foreclosures, falling home prices, and the trickle-down effects of ailing credit markets. I want all Texans to know that Congress is taking measured steps to ease the burden facing many homeowners, to continue to make loans available, and to soften the toll of the housing crisis on our economy.