Hurricane Katrina's impact on housing in the Gulf Coast is being felt in Washington as Fannie Mae and Freddie Mac give affected homeowners a reprieve on mortgage payments and lawmakers consider requiring the housing-finance companies to set aside a portion of their profit to help rebuild low-income housing in flood-ravaged areas.
Freddie yesterday said it is instructing servicers to suspend collection of payments on mortgages it owns for three months and up to an additional nine months on a case-by-case basis. The company also gave servicers the option of returning September mortgage payments to homeowners in the affected areas. Fannie has allowed servicers to suspend mortgage payments and reduce payments for 18 months or more, depending on the borrower's circumstances. Lenders are also required to temporarily stop reporting late or missed payments to credit agencies.
Meanwhile, House Financial Services Committee Chairman Michael G. Oxley (R-Ohio) and Rep. Richard H. Baker (R-La.) are in talks with House colleagues about amending a bill regulating the companies so that areas affected by the hurricane, including those that are absorbing displaced victims, would be first to receive money from a fund for low-cost housing, committee spokeswoman Peggy Peterson said.
Katrina has created a "long-term need for affordable housing," Peterson said. "It makes sense to give greater priority to areas that need help the most."
The proposal that Baker and Oxley want to change would require that Fannie and Freddie put aside 5 percent of their after-tax profit to fund the construction or rehabilitation of housing for low-income renters and home buyers. The set-aside is part a larger bill that would tighten regulation of Fannie and Freddie following their multibillion-dollar accounting scandals.
The bill's progress to the House floor stalled this summer after a group of conservative lawmakers raised concerns about the proposed set-aside. Some worried that the two companies would use the fund to give money to political allies. Others cringed at the idea of the federal government seizing profit from private businesses.
Republican members of the Senate Banking Committee rejected the proposed fund, leaving it out of legislation the committee approved in July.
The hurricane "reinforces the reason to have such a fund," said Rep. Barney Frank (D-Mass.), a member of the House Financial Services Committee. "Some people said, 'Well, it's going to be abused.' Well, let's see how it works in Louisiana."
Bert Ely, a financial services consultant and longtime critic of Fannie and Freddie, said even if fund supporters win over critics, they still may not secure a floor vote because the House and Senate have not resolved how far to rein in the companies. The Senate bill goes further than the House bill in restricting the types of assets Fannie and Freddie can hold for investment purposes and would probably force the companies to shrink.
"I'm skeptical that this will be enough to rocket it forward," he said. "I never thought the affordable-housing issue was that big of a barrier to the bill."