Calming The Markets By Easing The Credit Crunch
Tuesday, August 21, 2007SUSIE GHARIB: Senator Chris Dodd says he received assurances today that the Federal Reserve will act to ease the credit crunch. Treasury Secretary Paulson says it will take some time for the bad lending practices of the last few years to play out in the market. The Treasury secretary and the chairman of the Federal Reserve were summoned to Capitol Hill today by Dodd, the Banking Committee chairman and presidential candidate. As Stephanie Dhue reports, lawmakers are pressing for solutions.
STEPHANIE DHUE, NIGHTLY BUSINESS REPORT CORRESPONDENT: Senator Chris Dodd urged Fed Chairman Ben Bernanke and Treasury Secretary Henry Paulson to use all the tools at their disposal to ease the credit crunch. The Banking Committee chairman praised the Fed`s move last Friday to cut the discount rate, but Dodd says the Treasury doesn`t seem to get it.
SEN. CHRIS DODD, BANKING COMMITTEE CHAIRMAN: The secretary of treasury pointed out that this is going to take some time to resolve this, and I don`t disagree with that. But there`s some steps that could be taken right away that could minimize this problem from spilling over into other sectors of the economy here.
DHUE: Specifically, Dodd wants the administration to add liquidity to the credit markets by lifting the dollar amount of loans Fannie Mae and Freddie Mac can hold on their books. The Treasury has resisted, saying the conventional loans Fannie Mae and Freddie Mac purchase are not the problem loans. John Dalton of the Financials Services Roundtable says lifting the limit could stimulate the mortgage market.
JOHN DALTON, PRESIDENT, HOUSING POLICY COUNCIL: Having Fannie Mae lift the caps and for Fannie Mae and Freddie Mac have their caps lifted, giving them an opportunity to do more, would enhance liquidity and would bring some stability to the marketplace.
DHUE: Dodd called for the Fed to issue regulations that crack down on predatory loans. He also wants a probe into the credit rating agencies and reform of the Federal Housing Administration.
Congressman Barney Frank, who heads the House Financial Services Committee, is also pushing for changes in the mortgage market. Frank has a hearing planned when Congress returns from its summer recess.
REP. BARNEY FRANK, CHAIRMAN, HOUSE FINANCIAL SERVICES COMMITTEE: We have substantial innovations in the broader financial markets, and it`s probably time to look at the regulation and see what we need to do to update it.
DHUE: Investors now are shunning risky loans. Last year, 40 percent of mortgages were made to borrowers with low credit scores or without income verification, but those loans are no longer being made. ISI analyst Andy Laperriere says there`s little Congress can do to change that.
ANDY LAPERRIERE, ANALYST, ISI GROUP: That`s a very significant amount of demand for housing that has evaporated in the last few weeks. What can Congress or the Fed possibly do to replace that demand? And I think the answer is not much.
DHUE: But as the housing crisis deepens and the presidential election draws near, lawmakers will want to show they`ve doing something about the problem.
Stephanie Dhue, NIGHTLY BUSINESS REPORT, Washington.
