Thursday, June 25, 2009

Rep. Frank at it again....

Here we go again. Rep. Barney Frank (D-MA) is at it again. This time Rep. Frank is asking Fannie Mae and Freddie Mac to “make appropriate adjustments” in regard to mortgage guarantee’s for condos. Currently, Freddie Mac and Fannie Mae are “no longer guarantee mortgages on condos in buildings where fewer than 70 percent of the units have been sold” according to a Reuters report (Fannie, Freddie asked to relax condo loan rules: report) Reuters also reports, in the same article, that “Fannie Mae will also not purchase mortgages in buildings where 15 percent of owners are delinquent on condo association dues or where one owner has more than 10 percent of units.”

The Wall Street Journal in an article Barney the Underwriter echoes Reuters report with “After two years of telling us how lax lending standards drove up the market and led to loans that should never have been made, Mr. Frank wants Fannie and Freddie to take more risk in condo developments with high percentages of unsold units, high delinquency rates or high concentrations of ownership within the development.” Does this make sense? Isn’t this how America got into a recession? Can America afford a second housing bubble as many predict is about to occur?

If America cannot then why in the world do we want to lax lending practices anywhere? Common sense and learning from history is not taking place here. Rep. Frank does wield a lot of power in Washington evident by his ability to take a parts dealership off the chopping block, when GM and Chrysler were deciding to scale back operations, in his home district.

Rep. Frank was on O’Reilly Factor last night. Last time Rep. Frank showed up on O’Reilly Factor the conversation ended in a shouting match and didn’t accomplish much. While they talked on an array of topics with one of them being Rep. Frank’s request to lax lending practices. O’Reilly challenged Rep. Frank to defend the Wall Street Journal report that he is looking to lax rules on condo mortgages. Rep. Frank response was, “with the condiminiums we are not talking about sub-prime or poor people. We do have this problem in cities with vacant properties causing serious problems to the cities. What I want is to say his heres the rule, they have a rule that they will not finance a condiminium unless 70 percent of the units in the building is already sold; I am not talking at all if that borrower can pay for them. They should not allow any borrower who cannot pay for it to do it. But I think they have a fisious cycle. If you won’t fund anybody until its 70 percent it will never by 70 percent and you have a serious problem with cities and vacant properties.” Rep. Frank also claimed that he “was opposed to the sub-prime mortgages”.

Really, that is why in 2000 Rep. Frank quipped, in response to a report that Freddie and Fannie may be insolvent because of the guaranteed sub-prime loans, “no federal liability there whatsoever.” Than in 2003 when President Bush pushed for reform after Fannie and Freddie inflated earnings report by $10.6B, Rep. Frank quipped, “Fannie Mae and Freddie Mac are not facing any kind of financial crisis. The more people exaggerate these problems, the more pressure there is on these companies, the less we will see in terms of affordable housing.”

Now that brings us back to the topic at hand. Rep. Frank feels, as he said on the O’Reilly Factor, that unless something is done to assist condominium developments with less than 70 percent units sold we will “have serious problems with cities and vacant properties.” Perhaps it’s the current housing market that has seen an increase in the number of homes for sale. According to Realestateabc.com, the inventory of homes on the market “rose to 3.97million units, an 8.8 percent increase from the 3.737 million in March.” That being said, if not offering lower rates (subprime) how else does Rep. Frank see condiminium developers filling the remaining 30 + percent vacancy rate that Freddie and Fannie are refusing to offer loans to?