Dear Friend:

The U.S. Senate appears ready to take up GSE reform. Banking Committee Chairman Chris Dodd (D-CT) has now held two hearings and has stated publicly that legislation is forthcoming. Moreover, Treasury Secretary Paulson has expressed confidence that agreement on a final bill can be reached. But, given the turmoil in the credit and housing markets and Congress.s concern over the growing numbers of foreclosures, it remains to be seen how quickly the Senate will move.

In other news, Freddie Mac announced significant changes to its guarantee fees. The new combined fees could go as high as 3.3% of the amount of the loan, depending on the combination of a borrower.s income, FICO credit scores and the amount of down payment. While this decision will clearly benefit Freddie Mac.s shareholders, as CEO Richard Syron explained, the impact will fall heaviest on low- and moderate-income homebuyers . the very people the GSEs are supposed to serve.

The change is likely to force more homebuyers to obtain FHA (Federal Housing Administration) backed mortgages. This means adding more risk for taxpayers in the event that homeowners cannot make their payments. It also means that Freddie Mac, having obtained congressional approval for higher loan limits of nearly $730,000, will have more incentive to serve the well-heeled at the expense of everyday Americans.

Finally, the Freddie Mac decision which has not yet been echoed by Fannie Mae, came with no notice to the public, nor was any opportunity provided for the housing community and others to protest to the GSEs or to their regulators, OFHEO and HUD. In short, Freddie.s unilateral decision reinforces the need for a strong single regulator and congressional passage of GSE reform legislation.

Sincerely,

JC Watts, Chairman, FM Policy Focus