Government Wants Out of the Mortgage Business: Say Goodbye to Fannie and Freddie?
The intent of the administration is to reduce the federal government’s role in mortgage insurance and rely more on the private sector to determine mortgage rates and qualifications.
Michael D. Berman, CMB, Chairman of the Mortgage Bankers Association is pleased with what is now on the table. We are gratified to see that one of the concepts they articulate closely tracks MBA’s proposal, released eighteen months ago, that visualizes a workable, commonsense system driven by private capital. Our proposal envisions an explicit, but limited, government guarantee of lower-risk mortgage-backed securities. The guarantee would be paid for by fees used to build a fund to protect taxpayers. We continue to believe that this is the most prudent approach, one that places the primary risk on private investors and ensures sufficient liquidity during times of economic stress in order to provide affordable mortgage finance in all types of mortgage markets. Our proposal directly addresses the problems that caused the failure of the Fannie Mae/Freddie Mac system.”
The proposal that went to Congress suggested three approaches: phase out Fannie and Freddie, but keep FHA to guarantee some percentage of mortgages; charge fees to consumers to pay for insurance; or have the government serve as a reinsurer. Right now, Fannie and Freddie guarantee roughly half of all mortgages. These options are likely to decrease the number of borrowers qualified to purchase a home, and drive rates higher as the market adjusts.
Secretary Geithner indicated that, regardless of the plan ultimately adopted by Congress, it will take about five years to phase in — and phase Fannie and Freddie out. Geithner also indicated that there have been discussions regarding the impact the plan will have on the rental market, as more and more potential home buyers find they no longer qualify for mortgages with new insurer rules and higher rates. In an interview over the weekend, he made reference to a possible government program to help renters, but offered no details.
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