Current management of the Fannie Mae and Freddie Mac conservatorships is contributing to tight mortgage credit conditions, holding back a recovery in the housing market, according to a Federal Reserve Board official.
Fed governor Elizabeth Duke late in the week said the GSEs’ loan buyback policies are contributing to the “extraordinarily tight credit standards that currently prevail” in the market.
She noted that lenders are hesitant to offer mortgages to borrowers in the lower range of Fannie and Freddie purchase parameters due to fears the GSEs could force them to repurchase the loans if the borrower defaults.
“Although the ability of the GSEs to ‘putback’ loans to lenders helps to protect the taxpayer from losses, an open question is whether the costs of the associated contraction in credit availability outweigh the benefits of risk mitigation,” Duke told a meeting of the Virginia Bankers Association Friday afternoon.
She also questioned the Federal Housing Finance Agency’s emphasis on minimizing losses to Fannie and Freddie and urged the agency to consider policies that could aid the “healing” of the housing market.
“I think it is plausible that a faster recovery in the housing market could speed, rather than slow, the end of the GSE conservatorship.” Gov. Duke said.