by Tanta on 4/19/2007 01:14:00 PM
Thursday, April 19, 2007
We want subprime borrowers to have a fair shot at homeownership. We think simple, straightforward, fixed-payment mortgages generally are the best products for these borrowers.
So Fannie Mae should not walk away and say the market turmoil is not our problem. We are concerned about a liquidity crunch in the subprime segment -- the risk that as the turmoil shakes out, the flow of capital to finance subprime lending could slow to a trickle. Some may ask, why would that be a problem? Don't we want to cut off financing for this segment? The answer is no -- that would only make it more difficult and costly for the least fortunate borrowers who depend on this lending to finance or refinance their homes. Robert Gnaizda of the Greenlining Institute said, "[A]rbitrary and artificial tightening of credit & may be counterproductive -- that is, it may dry up credit for members of minority groups, the poor, and the 70 percent of Americans who live from paycheck to paycheck." Economic history has a way of punishing the most vulnerable first and last -- we should try to avoid that as the lasting effect of the subprime clean-up.
We should also seek to get ahead of the problem and help borrowers who are not yet in trouble. This is the more immediate problem of borrowers facing imminent "payment shock," homeowners with adjustable-rate loans that are scheduled to reset at higher rates. We want to help prevent further disruption of the subprime market, which would make it tougher for these borrowers to refinance into better, safer loans.
That is where we are concentrating our efforts today. We believe the best way to influence the subprime market, and be part of the solution, is to stay engaged and provide funding for conventional loans to these borrowers that are affordable over the long term.
Posted by Tanta on 4/19/2007 01:14:00 PM