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BREAKING NEWS Obama Administration Calls For Housing Overhaul, Winding Down of Fannie Mae and Freddie Mac

By
Services for Real Estate Pros with Think Glink Media

It’s no secret the role of government-controlled mortgage finance companies Fannie Mae and Freddie Mac has grown out of control.

http://www.thinkglink.com/static/files/picture/geithner-obama1.jpg

The fate of the mortgage giants has been discussed for a while now, but today action has been proposed.

Treasury Secretary Timothy Geithner announced his recommendation for the future of Fannie Mae and Freddie Mac, and it involves a lot less involvement for the government-controlled mortgage finance companies.

The Obama administration supports this proposal to “wind down" the market share currently held by the government mortgage buyers, but says we should continue to count on Fannie and Freddie as a “backstop” in times of crisis.

The proposal offers three long-term options to reduce the government role and a few short-term steps to raise the cost of government-backed mortgages.

Taxpayers have been supporting Fannie Mae and Freddie Mac to the tune of $150 billion since September 2008. All three of the options proposed today would end taxpayer support.

The Three Options

  1. Extreme Change Involves a “privatized” system of housing finance and little help from the government. In this options the government's only role is to help “narrowly targeted” low-income and veteran buyers.

  2. Middle Ground This option would replace Fannie and Freddie with a system aimed at helping low-income and veteran buyers (FHA's traditional target) in normal times and also provide a backup in a crisis. According to the Treasury Department this option is possible through the use of high-priced guarantee fees and restricted amounts of public insurance.

  3. Big Government Role The third option most closely mirrors the current system for the GSEs. Option three would impose even more regulation on Fannie Mae and Freddie Mac and carve out the government's role as “catastrophic reinsurance behind significant private capital.”

  • Increase the monthly insurance premiums, or guarantee fees, now charged by Fannie Mae and Freddie Mac. Higher premiums would in theory give other companies incentive to compete for lending.
  • Increase Federal Housing Administration premiums by .25 percent/lower the ceiling for loans that Fannie Mae and Freddie Mac can insure. Jumbo loans are currently capped at $729,750 but are scheduled to fall to $625,500 on Oct. 1 if Congress doesn’t act.
  • The administration also endorsed an existing law that forces the GSEs to shed loans in their $1.5 trillion portfolios by 10 percent a year as a way to reduce government exposure to failing mortgages.
  • Phasing in higher pricing for Fannie, Freddie to a level even with private sector. This move would take place over several years.

The release of the report by Geithner and HUD head Shaun Donovan marks the beginning of a likely embroiled battle and political debate over how to fix the mortgage-finance system.

Geithner warns that political deliberations can't take too long. He is calling on Congress to legislate "some time over the next two years".

Which option do you think the government should choose?

For more information on this breaking news: http://tiny.cc/zuu8r

 

Comments (3)

Les & Sarah Oswald
Realty One Group - Eastvale, CA
Broker, Realtor and Investor

It is going to become more expensive to own a home.

Feb 11, 2011 03:46 AM
John Culdesac
Weichert Realtors - Manassas, VA

Thanks for the information Ilyle.

Things are getting interestinger and interestinger...

Johnny

Feb 11, 2011 03:49 AM
Jason M. Keith
Caliber Home Loans - Parker, CO
Equal Housing Lender

This is a very good post.  Great information to educate everyone on what we really need to be paying attention too!

Feb 11, 2011 03:52 AM