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Letters to Regulators

Housing Goals for Fannie Mae and Freddie Mac

December 17, 2004

December 17, 2004

Rules Docket Clerk
Office of General Counsel
Room 10276
Department of Housing and Urban Development
451 Seventh Street, SW
Washington, DC, 20410-0500

Re: Docket No. FR-4960-A-01; HUD's Regulation of the Federal National Mortgage Association (Fannie Mae) and the Federal Home Loan Mortgage Corporation (Freddie Mac); GSE Housing Goals-Advance Notice of Proposed Rulemaking

Dear Sir or Madame:

The Independent Community Bankers of America1 welcomes the opportunity to comment on the Advance Notice of Proposed Rulemaking issued by the Department of Housing and Urban Development (HUD) regarding the feasibility of the housing goals for Fannie Mae and Freddie Mac during a period when refinances of home mortgages constitute a large share of the mortgage market.

ICBA strongly supports HUD's intent to consider a regulatory provision that recognizes and takes into consideration the impact of high volumes of refinance transactions on the government sponsored enterprises' (GSE's) ability to achieve the housing goals issued by HUD in certain years.

As stated in ICBA's letter to HUD dated July 16, 2004, (attached) on the proposed housing goals which have since been finalized, we are concerned that in certain economic environments when refinancing is a substantial part of market activity, such as we have just experienced during the recent downward cycle in interest rates, too strong a focus on the GSEs financing home purchases to the detriment of the purchase of refinances could cause serious disruptions in the mortgage market. Also, in our view, it would clearly conflict with the mandate that Congress gave the two GSEs in their charters to provide stability in the secondary market for residential mortgages. By making home purchase mortgages more desirable for goal achievement, we believe credit would be allocated in a manner not intended by Congress.

Refinancing of mortgages can benefit lower income families and those residing in geographic areas targeted by the goals. Refinancing allows homeowners to benefit from lower interest rates when interest rates are falling or enables those who obtained subprime loans with a higher interest rates to refinance to obtain more affordable payments when their credit improves. Cash out refinancings can also help homeowners maintain or improve their homes. Thus, we see valuable benefits in allowing refinances to count toward the goals.

Some have suggested removing refinances from the goal calculations entirely. ICBA would support this. ICBA may also be supportive of other ways of addressing refinances in goal calculations, so long as they do not constrain or disrupt the mortgage market in times of heavy refinancing activity or contain disincentives for the GSEs to purchase refinancing mortgages. Also, interest rates can move very rapidly and the GSEs should not be constrained in providing needed liquidity to lenders and their customers by overly burdensome goals or a lengthy and burdensome process the GSEs would need to go through to obtain revisions to the goals from HUD when the economic environment necessitates it.

We appreciate HUD's willingness to study this issue further. If you wish to discuss our views, please call Ann M. Grochala, Director, Lending and Accounting Policy at (202) 659-8111.


Charles Saeman
ICBA Lending Committee

1 The Independent Community Bankers of America represents the largest constituency of community banks of all sizes and charter types in the nation, and is dedicated exclusively to protecting the interests of the community banking industry. ICBA aggregates the power of its members to provide a voice for community banking interests in Washington, resources to enhance community bank education and marketability, and profitability options to help community banks compete in an ever-changing marketplace. For more information, visit ICBA's website at www.icba.org.

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