Blogger bobn still acquits Congress of responsibility for relaxing GSE lending standards because it avoided formal legislation by resorting to informal pressure--so-called "regulation by raised eyebrow." Beyond misreading history, bobn overlooks continuing practice:
Two Democratic lawmakers are calling on Fannie Mae and Freddie Mac to relax recently tightened standards for mortgages on new condominiums, saying they could threaten the viability of some developments and slow the housing-market recovery.I don't get why "Congress is innocent" is important to bobn. But it remains naive form-over-substance.
In March, Fannie Mae said it would no longer guarantee mortgages on condos in buildings where fewer than 70% of the units have been sold, up from 51%. Fannie Mae also won't purchase mortgages in buildings where 15% of owners are delinquent on condo association dues or where one owner has more than 10% of units, which the firm sees as signals that a building could run into financial trouble. Freddie Mac will implement similar policies next month.
In a letter to the chief executives of Fannie and Freddie, Reps. Barney Frank, the Massachusetts Democrat who is chairman of the House Financial Services Committee, and Anthony Weiner (D., N.Y.) warned that the 70% sales threshold "may be too onerous" and could lead condo buyers to shun new developments. The legislators asked the companies to "make appropriate adjustments" to their underwriting standards for condos.
The political push illustrates the balancing act facing the two government-controlled mortgage-finance giants as they struggle to keep the housing market afloat without losing more money.
Read Wolf Howling's excellent summary.
(via Doug Ross)