ST. PAUL - Federal actions to backstop a pair of mortgage giants are good as far as they go, but Minnesota observers say homeowners deserve more attention.
"That is just an attempt to protect the market," said professor Prentiss Cox of the University of Minnesota "There is a distinction between helping homeowners and protecting the market."
The Federal Reserve Bank on Monday announced that it was prepared to loan Fannie Mae and Freddie Mac money to allow the two firms to remain solvent. It was not clear the low-interest loans would be needed.
And Treasury Secretary Henry Paulson said on Sunday that the Bush administration is seeking congressional approval to expand its line of credit to the two firms, and to allow the federal government to buy shares of the companies if needed.
Fannie and Freddy provide money to financial institutions that make home loans to Americans. They hold about half of the country's outstanding mortgages.
U.S. Sen. Norm Coleman, R-Minn., called the federal actions a "backstop" to the mortgage giants.
"The issue there is fear," Coleman said. "Fear is governing the market."
Cox said that the market - led by private companies Freddie and Fannie - needs to be protected. However, he added, homeowners are being left out.
"Homeowners, it has just been kind of 'sorry, you have to deal with it yourself,'" he said.
Cox supports a federal proposal like state bill Minnesota Gov. Tim Pawlenty vetoed earlier this year.
The vetoed Minnesota bill would have provided some homeowners facing foreclosure extra time to negotiate new mortgage provisions with lenders. A similar bill now has been introduced in Congress.
Minnesota Attorney General Lori Swanson, a former advisor to the Federal Reserve Bank, said the federal actions are a help.
"Although long overdue, the new federal rules will close some gaps in areas where the states are preempted from acting and create national underwriting standards to address some of the lax practices that gave rise to the mortgage meltdown," Swanson said. "The entire economy is reeling from the mortgage fiasco, and hopefully regulators will draw lessons from this crisis when regulating other complex financial transactions."
The mortgage problem stems from lenders providing mortgages to Americans who could not make payments. Swanson last year told the Federal Reserve Board that it should adopt rules requiring lenders to verify that a person can repay the loan.
Cox said that so far, the Bush administration has done little to help the situation.
"It has just been a bunch of press releases," Cox said.
Cox added that banks pressured Republicans like Bush and Pawlenty to reject bills to give homeowners some relief. But Democrats nationally also have not succeeded.
"There has been some great support from some elements of the Democratic Party in helping homeowners, but when push comes to shove Democrats have not been any more receptive," Cox said. "Any time you try to help the homeowners at all, there was this substantial pushback from the lending community."