Tag Archives: Law360

Reiss on Fannie/Freddie Loan Limits

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Law360 quoted me in Time May Not Be Right To Limit Fannie, Freddie Loans (behind a paywall).  It reads in part,

The Federal Housing Finance Agency has proposed lowering the maximum size of the loans Fannie Mae and Freddie Mac can purchase as part of an effort to attract more private-sector lending, but some experts warn that other market factors including rising interest rates will keep private lenders from filling the gap.

The FHFA announced earlier this month that it planned to reduce the maximum size of home mortgage loans eligible for backing by the government-sponsored enterprises. The move is part of the agency’s strategic plan of slowly backing away from the mortgage market and encouraging private capital to take its place. But some real estate attorneys and practitioners say private lenders need more than customers to convince them to take the plunge.

Many other environmental factors affect private lenders’ decisions about whether to enter the residential mortgage market, said Bob Bostrom, a shareholder of Greenberg Traurig LLP and former counsel to Freddie Mac.

Reducing the number of loans eligible for Fannie and Freddie backing and raising guarantee fees — another recent tactic — sound good in theory, but they don’t change the fact that the interest rate for a 30-year fixed-rate mortgage rose a full percentage point over the past several months and the housing market dipped correspondingly, Bostrom said.

“The housing recovery is extraordinarily fragile right now,” he said.

The steps the FHFA is taking to reduce the GSEs’ size and scope will work only when there’s a private sector ready to step in, experts say. Until then, these measures can only push the housing market backward, they warn.

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Not everyone is convinced of this dark forecast, however. David Reiss, a Brooklyn Law School professor and real estate finance scholar, told Law360 on Thursday that he’s not convinced the FHFA’s moves will have a negative effect.

Although the pullback should be gradual, it must be done, because the government can’t continue to hold up the mortgage market indefinitely, he said.

Reiss says current market factors actually favor weaning borrowers off Fannie and Freddie, noting that private capital in the sector has increased — particularly in the market for jumbo loans — and that the overall housing market has stabilized.

“We’re past the immediate crisis,” he said. “There’s nothing going on right now that makes me think a downward adjustment in conforming loan limits won’t be met by an increase in capital from private lenders,” Reiss said.

Judge Rakoff Is All FIRREA-ed Up

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Law360 quoted me in a story, Rakoff Gives DOJ License To Be Bold In Bank Crackdown (behind a paywall), that reads in part,

U.S. District Judge Jed S. Rakoff’s expansive Monday opinion backing the federal government’s $1 billion mortgage fraud suit against Bank of America Corp. leaves the U.S. Department of Justice wide latitude to use its favorite financial fraud tools in cases linked to the recent financial crisis.

Judge Rakoff’s opinion expanded his May decision allowing the Justice Department’s October suit against Bank of America over lending practices during the housing bubble and financial crisis to move forward under the Financial Institutions Reform Recovery Enforcement Act, while also explaining why portions of its case using the False Claims Act failed.

The ruling, which accepted the government’s broad view of which federally insured financial institutions can be sued under FIRREA and on what grounds, gives the government further ammunition to bring such cases in the future, said Brooklyn Law School professor David Reiss.

“The federal government has taken an expansive view of this phrase, and Judge Rakoff agrees that it can be read broadly in certain circumstances, such as when the affected federally insured financial institution is the alleged wrongdoer itself,” he said.

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[T]he Second Circuit will look closely at other appellate rulings related to interpreting congressional intent, as well as any rulings dealing specifically with FIRREA should an appeal come its way, as many observers expect.

However, it is likely to look closely at Judge Rakoff’s opinion when rendering an ultimate decision, which is why he considered those issues, Reiss said.

“Judge Rakoff stated that this result clearly flowed from the plain language of FIRREA, so the defendants may have a hard time on appeal,” he said.