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Industry Groups See Government in Agencies' Future

Multiple mortgage industry groups slated to testify this afternoon before a House Financial Services subcommittee will plead the case for continued government support in the future for mortgage giants Fannie Mae (FNM) and Freddie Mac (FRE). The subcommittee on government-sponsored enterprises (GSEs) will hear from the Mortgage Bankers Association vice chairman Michael Berman, who acknowledges the need for a limited level of government support going forward beyond the current crisis, according to remarks prepared ahead of the hearing. Berman says the government can provide needed support through explicit guarantees against mortgage investment-related credit risks, the cost of which can be offset by risk-based premiums paid by the investors. He calls for increased private investor participation in the secondary markets to complement the limited government support. Read his testimony here. A former member of the National Association of Realtors (NAR) board of directors, Frances Martinez Myers testifies on NAR's behalf. Despite the effect the GSEs had even from conservatorship on keeping the economy from slipping further, limited private capital in the jumbo mortgage market is still causing constriction elsewhere for borrowers seeking mortgages above the GSE limits, according to Myers's prepared testimony. "For homeowners needing to refinance to a more reasonable mortgage product, the lack of liquidity is all but forcing many homeowners into foreclosure or short sale, which continues to place severe downward pressure on housing and the economy," Myers says. Not only will the GSEs need government support going forward, but entities or facilities should be established to provide liquidity in the jumbo and commercial mortgage markets to solve this liquidity issue, Myers adds. Read Myers's prepared remarks here. Chairman of the National Association of Home Builders, Joe Robson, also appears before the subcommittee today to testify that the affordable housing mission must continue with federal government backing, as the private sector can't be counted on to maintain affordable housing credit, according to prepared remarks. Robson says the GSEs, responding to the economic contraction, tightened underwriting standards perhaps too much and must be reigned in if credit will continue flowing. "We believe that the actions of the enterprises have forced the pendulum to swing too far, and, as a result, viable buyers are being denied credit," he says. "While the enterprises must operate in a safe and sound manner, beyond a point, such self-selecting measures become too restrictive." Read Robson's testimony here. Write to Diana Golobay. Disclosure: The author held no relevant investment positions when this story was published. Indirect holdings may exist via mutual fund investments.

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