By WAYNE MADSEN
WASHINGTON -- In red-hot housing markets, hard-working Americans with annual incomes of $100,000 or more now are finding it difficult to buy homes that were easily within their reach only a few years ago.
Fortunately, innovations like 30-year-fixed rate mortgages and low-down payment loans developed by Fannie Mae and Freddie Mac, the nation's two largest secondary home lenders, have kept Americans in the homeownership ball game -- at least, up to now.
All that could be in jeopardy, however, if the Senate Banking, Housing and Urban Affairs Committee rubber stamps a change recommendation by Fed chairman Alan Greenspan to impose harsh new size restrictions on the mortgage portfolios owned by Fannie and Freddie.
In recent testimony before Congress, Greenspan urged that the two lending giants be forced to sell more than 80 percent of the $1.5 trillion mortgages currently held in their own portfolios. Without such a requirement, Greenspan suggested Congress should scuttle this year's legislation altogether.
Unfortunately, Sen. Richard Shelby, R-Ala., who heads the Senate committee, took Greenspan's warning to heart and has produced a draft bill that would force Fannie and Freddie to drastically reduce their mortgage holdings.
Shelby also scrapped a provision in the tough, reform bill passed 65-5 by the House Financial Services Committee last month that earmarks 5 percent of Fannie and Freddie's annual profits for preservation, rehab and construction of low-income housing. The provision would generate up to $1 billion annually to meet a growing demand for affordable housing that has now reached 1.6 million units.
No one should consider that a mere charitable gesture. Numerous studies show that helping put poor people in their own homes -- rather than packing them into the societal quicksand of public housing -- puts them on a fast-track to the middle-class and productive lives as good citizens.
For most of his 19 years as the head of the Fed, Greenspan wisely concentrated on monetary policy -- keeping inflation and interest rates low and economic growth on a steadily rising flight path. Now as his final term as Fed chairman winds down, Greenspan, inexplicably, has branched out into housing policy as well.
'Significant systematic risks'
The 79-year-old financial guru repeatedly has warned that Fannie and Freddie's large mortgage holdings pose "significant systematic risks for our financial system."
This despite the fact that Fannie and Freddie already must pass stringent tests to prove they can withstand economic downturns on the scale of the Great Depression. Not to mention that as recently as two years ago, Greenspan had no such concerns.
Advocating a cap on publicly traded corporations like Fannie and Freddie would seem to be a distinct departure from Greenspan's longtime advocacy of allowing the free market to work. While charged by Congress to support housing by ensuring liquidity in the housing market, Fannie and Freddie also are shareholder-owner companies.
Greenspan's interference threatens to limit severely the amount of capital the pair need to buy up home loans from banks and sell them to third-parties -- a process that constantly frees up billions of new dollars for long lines of prospective home buyers.
Since their creation as GSEs nearly 40 years ago, Fannie and Freddie have funneled so many dollars back into home loans that the nation's homeownership rate is poised to top 70 percent -- an all-time record. The housing surge has been steady across all income groups, allowing millions of blacks and Hispanics to own homes for the very first time.
Why Greenspan continues to oppose measures such as those in the House bill remains a puzzle to many in the nation's capital.
X Wayne Madsen is a contributing writer for Online Journal (www.onlinejournal.com). Distributed by Knight Ridder/Tribune Information Services.