Washington, D.C., Oct. 27--Recent accounting and management issues at Freddie Mac have triggered an opportunistic onslaught against the housing government sponsored enterprises (GSEs) that not only ignores the will of the people and the intent of decades of policymakers, but also threatens the economic recovery process that now is underway, according to the National Association of Home Builders (NAHB).
"The housing sector of the U.S. economy has turned in a truly heroic performance, through both the recession of 2001 and the job-losing recovery since then," said NAHB Chief Economist David Seiders. Without this performance, Seiders said, the recession would have been longer and deeper and the recovery process to date would have been even weaker. Home sales and housing production have provided strong direct support to both GDP and the job market, and strong increases in house values have generated a massive amount of equity that has been tapped by America's home owners to support healthy portfolio restructuring as well as spending on remodeling and a broad range of consumer goods and services.
"This remarkable housing performance could not have been staged without a world-class housing finance system that facilitates both home buying and mortgage refinancing, and the U.S. housing finance system is highly dependent on the secondary market GSEs -- Fannie Mae and Freddie Mac. It's perfectly clear that the presence of the GSEs in the secondary markets has lowered the cost of home mortgage credit and assured the ready availability of credit through a broad range of mortgage instruments tailored by the GSEs to the diverse needs of American households," said Seiders.
"It's understandable," he added, "that the recent problems at Freddie Mac have raised questions about the quality of regulation dealing with the safety and soundness of the GSEs. But anti-housing factions already have stretched 'regulatory reform' into the areas of mission oversight and program approval. And now we're hearing even more alarming suggestions out of the Treasury Department that would weaken or destroy the GSE status of Fannie and Freddie. Cutting the GSE's lines of credit to the Treasury would raise the cost of home mortgage credit and undermine housing's support to the economy and the job market. Indeed, just the suggestion caused immediate damage to GSE borrowing costs as well as to GSE stock values."
Eliminating Fannie and Freddie's government guarantee, as proposed yesterday by Congressional Budget Office Director Douglas Holtz-Eakin, would raise mortgage interest rates by an average quarter of a percentage point, he told the Senate Banking Committee. Such a move would increase housing costs for tens of millions of American families. At current mortgage rates, a quarter-point hike (i.e. 6% to 6.25%) on a $150,000 home loan would boost the mortgage payments by an average of $264 per year, or nearly $8,000 over the life of a 30-year loan. This added burden would be felt most acutely by low- income households and first-time buyers attempting to enter the housing market. Each quarter-point increase in mortgage interest rates would effectively prevent more than one million families from qualifying for a home loan.
The U.S. economy still is struggling toward full-fledged expansion, and a strong performance by the housing sector is essential to this process. Public airing of anti-housing and anti-GSE biases by Administration officials inevitably jeopardizes the current economic situation as well as the outlook for 2004, Seiders said.
