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Sloan Sessions: Raising the lending roof

Marketplace Staff Feb 11, 2008

Sloan Sessions: Raising the lending roof

Marketplace Staff Feb 11, 2008


Scott Jagow: President Bush is expected to sign the stimulus package this week. Besides the much-talked-about tax rebates, there’s something else in there: Mortgage lenders Fannie Mae and Freddie Mac will now be able to back loans higher than $417,000. In fact, all the way up to $730,000.

Allan Sloan from Fortune Magazine, what is this supposed to accomplish?

Allan Sloan: The idea is, if you let Fanny Mae and Freddy Mac insure loans up to $730,000, it would stimulate the housing market. Everything will be great, it won’t cost anybody anything… It’s typical Washington. I think it’s absurd — but then again, what do I know?

Jagow: Well, why do you think it’s absurd?

Sloan: Because for starters, the idea of stimulus, at least as it’s been presented to me, is something quick and targeted and limited. That’s the whole gestalt, supposedly, of stimulus — at least according to the people who specialize in this. And this wouldn’t be any of the things.

The targets would be people like me, who quite rightly aren’t part of the current stimulus package. Because I guess we make too much money, or we’re rich. If you’re trying to stimulate the economy, the way to stimulate it is to give money to people who’re going to spend it, not to let me get a higher price for my house.

Jagow: So by increasing the limit, the idea is to allow people who can afford a bit more mortgage to have the benefit of the lower interest rate?

Sloan: And also it would banks that have made these loans larger than the limits for part of last year through now to sell them, to turn them into securities and sell them. And that way they theoretically have more money available to make more mortgage loans.

Jagow: So let me ask you in a different way: Who is benefitting?

Sloan: All right — the people who benefit are of course the shareholders of Fannie Mae and Freddy Mac, because they’d be doing a lot more business. People like me, if my house were on the market, I’d benefit because interest rates for someone buying my house would be lower than they would otherwise be.

And someone who’s upset about all of this is a very good and competent guy named Jim Lockhart, who’s the federal regulator of Fanny and Freddy. And what he says is, if we’re going to increase the federal loan limits for these people, we ought to also increase the supervisory power so we can make sure the companies have enough capital to engage in all this. Which I think is a very reasonable position.

Jagow: All right — Alan Sloan from Fortune Magazine. Thanks.

Sloan: You’re welcome, Scott.

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