Builders Fight Bush's
Low-Cost Housing Plan

Home builders, Realtors and others are prodding the Bush administration to rethink its plan to force Fannie Mae and Freddie Mac to increase their financing of homes for low-income people.

The administration -- unable to win support in Congress for legislation to tighten regulation of the two government-sponsored enterprises, or GSEs -- has been trying to use its existing regulatory muscle to rein them in. But a lobbying drive led by the National Association of Home Builders and other powerful groups shows that the administration is running into stiff resistance.

The home builders, the National Association of Realtors, the Mortgage Bankers Association and other groups are preparing a letter to Alphonso Jackson, secretary of the Department of Housing and Urban Development. The letter, with copies to congressional leaders, will warn that proposed HUD rules requiring the two GSEs to finance more "affordable housing" may have "unintended consequences," hurting some poor and middle-income people struggling to afford houses, according to several people involved in the lobbying.

HUD is charged with ensuring that the two GSEs use their ability to borrow cheaply in the government agency bond market to help low-income people buy homes. The GSEs' role is to buy mortgages from banks and other lenders, providing funds for them to make new home loans.

In April, HUD proposed new rules that would, among other things, raise the percentage of loans bought by the GSEs that finance borrowers whose incomes are at or below the median for their area. Rising in steps, the minimum would reach 57% in 2008, up from 50% under current rules. Interested parties have until July 2 to comment on the rules. The letter to Mr. Jackson will ask for a further 60 days of public comment, after which HUD would decide whether to push ahead with its rule or revise it.

The points being raised by the lobbying groups closely track objections raised by the GSEs themselves. Both GSEs stress that they favor more efforts to promote affordable housing but say HUD has made some unrealistic assumptions about how much more the GSEs can do over the next few years.

David Crowe, a senior vice president of the home builders, said HUD should avoid putting such onerous low-income requirements on the GSEs that they feel compelled to slash their financing of middle-income home buyers. One way to meet the rules would be to buy fewer middle-income loans so that low-income loans would be a larger proportion of the total. If lenders find it harder to sell middle-income loans to the GSEs, borrowing costs for such home buyers may rise. A recent Fannie document, prepared for the Realtors, said the company would have had to cut the dollar value of its mortgage purchasing 43% in 2001-03 had the proposed 57% rule been in effect then.

The GSEs and their allies also warn that the rules could weaken the Federal Housing Administration, or FHA, which insures mortgages for low-income borrowers. They say the goals would push the GSEs to "cherry-pick" the FHA's most creditworthy customers. If the FHA is left with only the weakest credits, its performance will deteriorate, the lobbying groups say.

Meanwhile, some mortgage bankers fret that if the rules hurt the GSEs' profitability, they will use their market power to exact tougher terms from banks that sell loans to the GSEs.

The White House apparently has taken a tougher line than HUD. A spokesman for the Office of Management and Budgetsaid the percentage requirements were raised after HUD submitted its initial proposal to the OMB.

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