Rep. Frank wants answers on jumbo loan inaction

BOSTON — A key House lawmaker on Monday complained that the mortgage industry has done little over the past month to make higher-value loans available in costly housing markets after Congress took steps to try to infuse more cash into the so-called jumbo market.

Rep. Barney Frank, D-Mass., said Monday that the House Financial Services Committee that he chairs will hold a May 21 hearing to try to find out why so-called jumbo mortgages remain difficult to get and continue to carry high interest rates, despite new rules that took effect April 1. Frank will try to get answers from mortgage bankers, Wall Street financiers and government-sponsored mortgage firms Fannie Mae and Freddie Mac.

"I am disappointed," Frank said in response to an audience question after a speech to a Mortgage Bankers Association convention. "We fought very hard to raise the loan limits for Fannie and Freddie, and there have been a lot of problems in implementation."

Frank said he called the hearing to "try to unstick" loans made under the new rules covering jumbo mortgages.

"There is a chain of people blaming each other, and we're going to call everybody in there into the hearing and find out why," Frank said.

To address the worst housing crisis in decades, the $168-billion economic stimulus package that President Bush signed in February included a temporary increase in the cap on mortgages that Fannie and Freddie can purchase or guarantee, from $417,000 to $729,750 in high-cost markets. The change will be in effect through 2008.

The goal was to spark investor demand for securities made up of higher-value mortgages backed by Fannie and Freddie, which would have the effect of driving down interest rates on jumbo loans and spur home buying and refinancing activity.

The immediate impact was expected to be muted as investors in mortgage-related securities remain wary of making risky investments, even if they're tied to mortgages guaranteed by Fannie and Freddie.

Although Freddie Mac said two weeks ago it would use its new lending flexibility to buy up to $15 billion in home loans for higher-priced properties, Frank said he was surprised at the extent to which jumbo loans remain out of reach. Interest rates on jumbo mortgages have been running about a percentage point higher than those for conforming loans for months, and Frank said he's seen little evidence since the new lending flexibility kicked in that the rate spread has narrowed.

Policymakers want to ease that gap so borrowers with decent credit ratings can buy a home or refinance more easily in such pricey markets as New York, San Francisco and Boston, where modest homes often can approach or exceed $1 million, making jumbo mortgages a necessity.