Fed says bigger Fannie, Freddie role could aid housing
WASHINGTON (Reuters) – The Federal Reserve on Wednesday said expanding the role of government-controlled mortgage firms Fannie Mae and Freddie Mac could speed a housing market recovery and lift the overall economy.
In a white paper to leading members of Congress, the Fed outlined an array of steps that could be taken to help the housing sector. It focused on ways to keep a lid on the vast inventory of unsold homes, make it easier for borrowers to get credit and contain an onslaught of foreclosures.
“Continued weakness in the housing market poses a significant barrier to a more vigorous economic recovery,” the Fed said in the paper, which was sent to the chairman and ranking minority members of the Senate and House of Representatives banking committees.
Fed Chairman Ben Bernanke, in a letter accompanying the recommendations, said the U.S. central bank had received requests for advice about what could be done to halt the spiral of falling home prices and rising foreclosures.
Among the Fed’s recommendations was allowing Fannie Mae (FNMA.OB: Quote, Profile, Research, Stock Buzz) and Freddie Mac (FMCC.OB: Quote, Profile, Research, Stock Buzz) to refinance loans that the two so-called government-sponsored enterprises have not guaranteed.
That could allow an additional 1 million to 2.5 million borrowers to refinance loans into lower interest rates through the government’s Home Affordable Refinance Program.
Although the GSEs would take on added credit risk from expanding HARP to non-GSE loans, the broader benefits from an expanded program might offset some of the costs, the Fed said.
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