Battling recession with Fannie & Freddy

Jeremy Hobson Feb 6, 2008


Doug Krizner: There’s no question about the economy dropping into low gear. Yesterday’s weak reading on non-manufacturing business set shivers down Wall Street. A U.S. recession now seems inevitable.

The Fed’s been slashing interest rates to soften the blow. Congress is also in on the act with stimulus packages. The House has agreed on one plan, the Senate’s expected to vote on another by the end of the week.

Tax rebates are the part everybody’s talking about. But there’s another key move aimed at rescuing the housing market that would allow government-backed lenders to take on bigger mortgages. Jeremy Hobson reports.

Jeremy Hobson: Right now, Fannie Mae and Freddie Mac can purchase loans no higher than $417,000 to limit risk. The stimulus package would hike that up as high as $729,000 in some areas. It also calls for boosting limits on mortgage insurance from the Federal Housing Administration, which would benefit lower-income families.

Charles McMillan of the National Association of Realtors says raise the limits, and more people will be able to buy homes.

Charles McMillan: More importantly, so many more people will be able to refinance into something much more palatable at interest rates much more appropriate.

But there are some who say raising the limits will just pass the troubles of lenders onto the government. Banking consultant Bert Ely says Congress shouldn’t rush through Fannie and Freddie reform as part of the stimulus package.

Bert Ely: Lots of times in circumstances like this, things are done that are not very helpful — maybe even counter-productive.

Ely says Fannie and Freddie have enough trouble as it is, and shouldn’t be taking on more expensive loans.

In Washington, I’m Jeremy Hobson for Marketplace.

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