A Solution for Jumbo-Sized Mortgages?
An article published by the Wall Street Journal gives the details of Federal Reserve Chairmen Ben Barnanke’s idea to allow companies to securitize jumbo-sized mortgages but have the federal government guarantee them. According to the article:
Fannie and Freddie currently can buy mortgages only up to $417,000, and Congress — so far — hasn’t acted to lift that limit despite distress in that market that has made jumbo mortgages at “somewhat tighter terms and higher prices,” as Mr. Bernanke put it.
As an alternative to lifting that $417,000 cap, Mr. Bernanke offered a surprise answer to questions on Capitol Hill. He suggested that Congress could consider allowing the companies, known as “government sponsored enterprises,” buy mortgages of as much as $1 million from lenders, pay the government a fee for guaranteeing them and then turn them into securities to be sold to investors.
Mr. Bernanke’s idea is significant because it could potentially extend the government’s support and exposure to the mortgage market…
Some people might be opposed to this idea because it exposes the federal government to the risk of the second mortgage market. But the way things are going with the mortgage industry, everyone and everything is at risk. Any change that could alleviate the market woes should be seriously considered.
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