Fannie Mae and Freddie Mac increase guarantees

As part of the economic stimulus package, the amount of guarantees the Freddie Mac and Fannie Mae provide have been increased, but not all economists think this is a wise decision for housing market.

In order to help the economy, the Bush Administration, as well as Congress is working to provide a huge stimulus package, part of which provides an increase in the amount that organizations Fannie Mae and Freddie Mac can purchase. Although the Bush Administration was reluctant at first to provide such a lucrative increase, it has pushed ahead. Now, these organizations can now purchase loans that nearly double its current size maximum loan at US $417,000.

The benefit, the package hopes, is to help unfreeze some of the largest, jumbo loans in the market, which may help to stimulate the housing market again. Most economists believe that doing this will help to bring down prices and help to increase the availability of these loans, especially for these larger loans, which are in need of financing.

However, are the current Fannie Mae and Freddie Mac organizations strong enough to take on such debt? Many economists are unsure.

As reported by CNN Money, James Lockhart, who is director of the Office of Federal Housing Enterprise Oversight (or OFHEO) said, "We are very disappointed in the proposal to increase the conforming loan limit as we believe it is a mistake to do so in the absence of comprehensive GSE regulatory reform."

GSE's are used to ensure liquidity within the mortgage markets. While the goal of the package is to use this by lifting the caps on the size of mortgages purchased in secondary markets, some are unsure if the OFHEO has enough ability to police the two GSE's.

Should these terms be approved, the two organizations could help stop the free fall of some of the highest valued homes in the US, in the California market.