US GOVERNMENT PROPOSED CHANGES FOR THE HOUSING MARKET AND MORTGAGES

By mark-slade February 11, 2011

As I have alluded too in earlier entries, changes are afoot that could dramatically impact the housing market and how Americans will finance their home purchases.  Please read on:

 

Obama’s Fannie, Freddie plan may boost mortgage rates

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The White House is going to propose a range of options to reform Fannie Mae, Freddie Mac and the mortgage market, which could cause changes to the face of American housing.

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By Zachary A. Goldfarb

Friday, February 11, 2011; 8:56 AM

The Obama administration proposed raising fees for borrowers and requiring large down payments for home loans as part of a long-term effort to reduce the government’s outsized footprint in the housing market, but warned that these moves could increase mortgage rates and potentially reduce the availability of the 30-year fixed rate mortgage, a mainstay of American housing for decades.
In a long-awaited white paper, the administration said that it intends to wind down Fannie Mae and Freddie Mac, which together with the Federal Housing Administration provide more than 90 percent of housing finance, but said the process could take five or more years.
It discussed three options for replacing them, including a new government agency that would insure mortgages all the time, a new agency that would only step in during times of market crisis, and then a third option that does not provide any government backing for home loans beyond the FHA.
The administration warned that this no-government option “has particularly acute costs in its potential impact on access to credit for many Americans.” The white paper also warned that this option could have the greatest impact on boosting mortgage rates and would make it difficult for community banks to compete in the housing market.
But it said the other options continue to put at risk taxpayers for bailing out the mortgage market in big declines.
Regardless of this longer-term overhaul, the administration suggested a range of new measures to make taking a government-backed mortgage more expensive and thereby making it more competitive for private sector firms to compete in offering mortgages.
These include reducing the size of mortgages Fannie and Freddie can purchase, from $729,750 now to $625,500 by this fall. It also includes phasing a 10 percent down payment requirement for the companies. Finally, it includes raising fees the companies charge to insure loans.
The administration also suggested scaling back FHA, which caters to first-time homebuyers with low down-payment options. It said it wants to reduce the size of loans that FHA can provide, increase fees by a quarter percentage point, and potentially raise the down payment requirement from 3.5 percent now to 5 percent in the future.
The report also emphasized the importance of rental housing for low and moderate-income communities.
Senior administration officials said they would take gradual steps, to avoid harming the already struggling housing market. But they said this plan laid the groundwork for the future of housing in America.
“This is a plan for fundamental reform – to wind down the [Fannie and Freddie], strengthen consumer protection, and preserve access to affordable housing for people who need it,” Treasury Secretary Tim Geithner said. “We are going to start the process of reform now, but we are going to do it responsibility and carefully so that we support the recovery and the process of repair of the housing market.”

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In an interview with CNBC immediately following the release of the report, Geithner said that it is “important Congress legislates this over the next two years.”
Mark Zandi, chief economist for Moodys.com, told CNBC that he felt the Obama administration had “laid out a prudent, appropriate plan.”
“At the end of the day, though, the government is going to have to play some role in a catastrophic backstop,” Zandi added.