Measured Steps to Ease Housing Crisis

The housing crisis is eroding the confidence of our nation’shomeowners, financial institutions, and investors at anaccelerating rate. Americans are growing anxious that the equitythey’ve paid into their homes may not provide the financialsecurity that home ownership once guaranteed. Worst of all, nearly1.9 million borrowers across the nation – more than 50,000 of themin Texas – who have filed for foreclosure on their homes this yearlive with diminished hope that their own symbol of the Americandream will be realized.

The Federal National Mortgage Association (Fannie Mae) and theFederal Home Loan Mortgage Corporation (Freddie Mac) each havesimilar roles in the home mortgage market. They buy mortgages fromprimary lenders – like banks – which make additional fundsavailable to those banks to lend to other potential homeowners.

Fannie and Freddie were created by Congress specifically to makehome ownership affordable and attainable for low- and middle-incomeAmericans. Since 2000, Freddie Mac has provided $821.6 million inlow-cost mortgages to Texas families. And as of May 2008, FannieMae has purchased over a million home mortgages in our state.Across the nation, Fannie and Freddie own or guarantee $5.2trillion in home mortgages – almost half of all outstandingmortgages in the U.S. Because current regulation requires each firmto have a financial cushion of cash or securities, plummetinginvestor confidence is the basis for the current climate ofcrisis.

Economists of all philosophies agree that the collapse of Fannieor Freddie would have a devastating impact on the U.S. housingmarket and further damage an already-fragile U.S. economy.

Concerns about their viability have reinvigorated Congressionalefforts to pass a sweeping housing bill addressing the core issuesof the financial crisis.

Central to the legislation are long-overdue reforms, whichestablish a new, independent entity to regulate Fannie, Freddie,and the 12 Federal Home Loan Banks that were set up after theSavings and Loan crisis of the 1980s. The new entity will have theauthority to set capital standards and establish prudent managementpractices. These provisions are designed to ensure the safe andsound operation of Fannie and Freddie and better prepare them toweather unforeseen market challenges that may arise in thefuture.

The new rules will try to ensure that lenders do not enticepeople who are unable to make the payments to take on too much debtby requiring a minimum down payment. The legislation also raisesthe limit on the size of a mortgage, allowing families in high-costareas of the country to access homeownership with fixed ratemortgages rather than exotic subprime loans. To spur homeownership, the bill includes a refundable first time homebuyer taxcredit. Additionally, the package extends tax relief by allowingowners who do not itemize deductions on their tax returns to claiman additional standard deduction for the amount they pay in localproperty 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 aboutrampant foreclosures, falling home prices, and the trickle-downeffects of ailing credit markets. I want all Texans to know thatCongress is taking measured steps to ease the burden facing manyhomeowners, to continue to make loans available, and to soften thetoll of the housing crisis on our economy.