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(Read more on the debt and equity markets and the multifamily market .)

WASHINGTON, DC-Multifamily investors and developers were disappointed late Friday afternoon when James Lockhart, the director of the Office of Federal Housing Enterprise Oversight, announced he had decided not to increase the portfolio caps for Fannie Mae and Freddie Mac. That has not stopped industry representatives from urging the regulatory body to rethink its decision. In a joint letter released at close of business on Monday, the Mortgage Bankers Association, the National Association of Home Builders and the National Association of Realtors explained to OFHEO why temporarily increasing the caps on the investment portfolios of Fannie Mae and Freddie Mac may well help to defuse the growing debt crisis.

“The nation’s mortgage markets are facing a liquidity crisis of a force and magnitude not seen in decades,” it read. “The chill will have far reaching effects throughout the housing market if stability is not restored. A temporary increase in the allowable size of the GSEs’ loan portfolios for the purpose of easing this credit crunch would help stem the crisis.”

Lockhart, perhaps unintentionally, held open the possibility that he might lift the caps in his Friday statement. “We will keep under active consideration requests for an increase in the portfolio caps, but we are not authorizing any significant changes at this time. We will continue to reassess that position, especially in the affordable housing area,” he said.MBA, NAHB and NAR emphasized that the move should also be accompanied by appropriate controls that would “assure that GSEs use the increased capacity to help meet the most urgent credit needs, including the private label MBS market and mortgages for creditworthy families who would otherwise find it difficult or impossible to obtain a mortgage loan.”

In his own publicly released statement, Fannie Mae president and CEO Daniel H. Mudd asked for a “moderate” increase in the range of 10%. He said that balance-sheet flexibility would allow Fannie “to fund additional multifamily loans, as well as single-family mortgages, where [we are] now one of a limited number of liquidity providers.”

Private sector loan officers are quick to point to other advantages that lifting the caps would have for consumers. Lon Cohen, a senior loan officer in M&T Bank’s Mortgage Division, for instance, notes that many people who are in subprime loans may not need to be there. “Widening the net can capture more loans or bail out some people who got bamboozled into taking these troublesome loans by refinancing them into stable fixed-rate loans,” he tells GlobeSt.com.

“In addition the OFHEO through Freddie and Fannie can also capture some of the Alt A and a little of the subprime business by having experienced loan officers run the borrowers through the Fannie and Freddie Automated Underwriting systems and offering some special programs that both organizations offer,” he continues. “Home Possible is Freddie Mac’s affordable housing product and My Community is Fannie Mae’s. They are better alternatives to some subprime and Alt-A loan programs.”

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