(Update with more details and quotes from Lockhart)
By Jessica Holzer Of DOW JONES NEWSWIRES WASHINGTON -(Dow Jones)- The regulator for Fannie Mae (FNM) and Freddie Mac (FRE) said Monday that restoring home affordability was key to a turnaround in the housing market.
Despite falling home prices, there are still many potential home buyers "on the fence," Federal Housing Finance Agency Director James B. Lockhart said at a housing conference Monday.
Along with foreclosure prevention, policy makers should work to increase affordability "through ample financing to help lower interest rates," Lockhart said.
The Treasury is reportedly mulling a plan to lower rates on all newly issued mortgages to 4.5%. Lockhart did not comment on that idea. However, he praised steps by the Federal Reserve and Treasury to ease rates by injecting liquidity into the mortgage market.
The Fed recently announced it would buy up to $600 billion in mortgage-backed securities backed by Fannie and Freddie. Treasury said it would buy $100 billion in debt backed by Fannie and Freddie. The announcements triggered an immediate drop in rates on 30-year fixed-rate mortgages.
Speaking to reporters at the conference, Lockhart noted that interest rates on Fannie's and Freddie's debt remain about 350 basis points above U.S. Treasurys, far greater than the historical "spread" of 120 basis points above Treasurys.
He said Treasury was working on a "whole series of ways" to drive the rates down. He said the plan to intervene in the mortgage rate to bring mortgage rates down to 4.5% for newly-issued mortgages was "one of many things" that people are talking about.
Lockhart said that Fannie and Freddie need to focus more on "their mission to provide affordability and liquidity" to the mortgage market rather than on profitability. He said they also need to boost their foreclosure prevention efforts.
However, Lockhart cast doubt on a 50% re-default rate for modified loans cited by Office of the Comptroller of the Currency John Dugan at the conference. "I don't know what's behind that re-default rate ... We're not seeing those kinds of rates with Fannie and Freddie."
Lockhart said it was too early to gauge the success of a program he announced recently in which Fannie and Freddie agreed to adopt a streamlined approach to modifying loans for some delinquent borrowers. To qualify for the program, borrowers must be at least three months behind on their mortgage payments.
Lockhart said there needed to be "more serious efforts" to help homeowners avoid foreclosure. However, he said the "state of play" on foreclosure prevention was moving so rapidly that "we're going to be doing a lot better going forward."
-By Jessica Holzer, Dow Jones Newswires; 202-862-9228; jessica.holzer@dowjones.com
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(END) Dow Jones Newswires
December 08, 2008 15:20 ET (20:20 GMT)

Publié le 08 Décembre 2008 Copyright © 2008 Dowjones