Obama administration wants to reduce government's role in the mortgage system - a proposal to redo decades of federal policy aimed at getting Americans to buy homes and would probably make more expensive mortgages in all areas.
The Treasury Department on Friday released a plan to slowly dissolve Fannie Mae and Freddie Mac, the government-sponsored programs who bought the mortgages to encourage more loans and bailouts necessary during the 2008 financial crisis.
Exactly how much the government's role in mortgages fell to the left in Congress to decide, but the three management options presented create a system of housing finance that depends much more on the private money.
"It is clear that the government wants the private sector to assume a more prominent role in mortgage rates, and that happens, mortgage rates have to rise," said Thomas Lawler, a housing economist in Virginia.
The removal of Fannie and Freddie rewrite 70 years of federal housing policy since the creation of Fannie as part of the New Deal to drive President George W. s Bush for an "ownership society" in the 2000's. It would transform the way homes are bought and redefine who can pay.
Treasury Secretary Timothy Geithner said the plan probably will not happen for at least five years and continue to "carefully." Meanwhile, said the company would have the liquidity needed to meet its obligations.
"We believe there is broad consensus on Capitol Hill and in the private market in general that there must be a transition to a much smaller role for government," he said.
Since the housing market went bust and the country fell into a financial crisis, the pressure has been the ability for the government to stop Fannie and Freddie and reduce risk exposure to taxpayers.
Fannie and Freddie own or guarantee nearly half of all mortgages in the United States. Along with other federal agencies, which have played a role in nearly 90 percent of new mortgages in the past year.
The two agencies buy mortgages from primary lenders, pool, and sold with a guarantee that investors will be paid by default, even if the borrowers. The idea is to give people the opportunity to purchase homes at affordable interest rates.
But the two almost collapsed in 2008 after the market for subprime mortgages collapsed and defaults and foreclosures pile. So far, have cost taxpayers nearly $ 150 million and could cost up to 259 billion U.S. dollars, FHFA says.
The first option proposed by the administration would give the government any role beyond help borrowers poorer and middle class through agencies like the Federal Housing Administration, which provides mortgage insurance.
The second and third option would give the government a role as insurer of mortgages, and each system mortgage companies to pass along the fees to the borrowers.
Under the one hand, the government would intervene to guarantee private mortgages during a severe economic downturn, as another housing crisis, but they provide limited support in normal times.
The third option would be more complex. The government says a large investment objective of mortgages already guaranteed by private insurers - which acts as a "reinsurance" intermediary financing companies. In the case of private insurers could not pay the owners of the mortgage investments, the government insurance would pay.
The third option would leave the government with the most important role and probably have the least impact on mortgage rates. While lenders have to pay fees, which would normally higher rates, government guarantees mortgages also a safer investment. That attract more private money and keep rates down.
"Compared to credit things operated in the past, would be a little less easy to obtain, and the conditions would be a little less attractive," said Nigel Gault, chief U.S. economist IHS Global Insight.
This option would face strong opposition from legislators. They fear that private lenders will inevitably take too many risks if the government had as a backup. Democrats and consumer groups said they feared that mortgage rates will soar if the system of housing finance were mainly for the private market and fewer people could afford 30 years, fixed rate mortgages. Mortgage rates are rising, but even today some of the lowest ever recorded. The national average 30-year fixed-rate loan is about 5 percent.
The changes would be felt by almost everyone who applies for a mortgage, homebuyers first time buyers negotiating midlife for a bigger house for older buyers scale back to a smaller home, said Joseph Murin, former president of Ginnie Mae, the government corporation that guarantees bonds backed by mortgages.
Gault said that there is an upside to making housing less attractive investment: People who can not afford houses would be less likely to buy, and you can rent instead. Bankers presumably more attention.
The removal of these buyers in the market could cause home prices to fall, however - which would help first time buyers, but hurt those who already own homes.
Through the three proposals submitted to Congress rather than a single recommendation, the administration avoids a politically delicate task that the new financial reform bill failed to do.
Also exert pressure on the Republicans in Congress have blamed Fannie and Freddie financial crisis, but have yet to offer a viable plan for reform. Democrats control the Senate, so any new policy would be approved by a divided Congress.
Republicans praised the White House at least start a serious discussion.
Conservative Rep. Jeb Hensarling, R-Texas, criticized the report for lack of details, but said it moved the debate "on whether the timing and manner in which wind down the commitments of taxpayers to Fannie and Freddie." Hensarling had pushed the legislation last year to drastically reduce the role of government in the housing market.
"If the White House is really signaling that they are willing to do something, it is likely that could happen in a matter of months," he said in an interview.
The administration can take some immediate action without congressional approval. It may require larger down payments on loans obtained federal guarantees, bar Fannie and Freddie to buy mortgages that are too large, or increase the fees charged.
Those steps would make a government-backed mortgages more expensive and get more private money into the market.
"When the government stops talking and starts working groups to flesh this, you will see a significant private capital is injected into the mortgage market," said Karen Shaw Petrou, who advises banks on the Federal Government's policy for Google Finance Analytics.
The Treasury Department on Friday released a plan to slowly dissolve Fannie Mae and Freddie Mac, the government-sponsored programs who bought the mortgages to encourage more loans and bailouts necessary during the 2008 financial crisis.
Exactly how much the government's role in mortgages fell to the left in Congress to decide, but the three management options presented create a system of housing finance that depends much more on the private money.
"It is clear that the government wants the private sector to assume a more prominent role in mortgage rates, and that happens, mortgage rates have to rise," said Thomas Lawler, a housing economist in Virginia.
The removal of Fannie and Freddie rewrite 70 years of federal housing policy since the creation of Fannie as part of the New Deal to drive President George W. s Bush for an "ownership society" in the 2000's. It would transform the way homes are bought and redefine who can pay.
Treasury Secretary Timothy Geithner said the plan probably will not happen for at least five years and continue to "carefully." Meanwhile, said the company would have the liquidity needed to meet its obligations.
"We believe there is broad consensus on Capitol Hill and in the private market in general that there must be a transition to a much smaller role for government," he said.
Since the housing market went bust and the country fell into a financial crisis, the pressure has been the ability for the government to stop Fannie and Freddie and reduce risk exposure to taxpayers.
Fannie and Freddie own or guarantee nearly half of all mortgages in the United States. Along with other federal agencies, which have played a role in nearly 90 percent of new mortgages in the past year.
The two agencies buy mortgages from primary lenders, pool, and sold with a guarantee that investors will be paid by default, even if the borrowers. The idea is to give people the opportunity to purchase homes at affordable interest rates.
But the two almost collapsed in 2008 after the market for subprime mortgages collapsed and defaults and foreclosures pile. So far, have cost taxpayers nearly $ 150 million and could cost up to 259 billion U.S. dollars, FHFA says.
The first option proposed by the administration would give the government any role beyond help borrowers poorer and middle class through agencies like the Federal Housing Administration, which provides mortgage insurance.
The second and third option would give the government a role as insurer of mortgages, and each system mortgage companies to pass along the fees to the borrowers.
Under the one hand, the government would intervene to guarantee private mortgages during a severe economic downturn, as another housing crisis, but they provide limited support in normal times.
The third option would be more complex. The government says a large investment objective of mortgages already guaranteed by private insurers - which acts as a "reinsurance" intermediary financing companies. In the case of private insurers could not pay the owners of the mortgage investments, the government insurance would pay.
The third option would leave the government with the most important role and probably have the least impact on mortgage rates. While lenders have to pay fees, which would normally higher rates, government guarantees mortgages also a safer investment. That attract more private money and keep rates down.
"Compared to credit things operated in the past, would be a little less easy to obtain, and the conditions would be a little less attractive," said Nigel Gault, chief U.S. economist IHS Global Insight.
This option would face strong opposition from legislators. They fear that private lenders will inevitably take too many risks if the government had as a backup. Democrats and consumer groups said they feared that mortgage rates will soar if the system of housing finance were mainly for the private market and fewer people could afford 30 years, fixed rate mortgages. Mortgage rates are rising, but even today some of the lowest ever recorded. The national average 30-year fixed-rate loan is about 5 percent.
The changes would be felt by almost everyone who applies for a mortgage, homebuyers first time buyers negotiating midlife for a bigger house for older buyers scale back to a smaller home, said Joseph Murin, former president of Ginnie Mae, the government corporation that guarantees bonds backed by mortgages.
Gault said that there is an upside to making housing less attractive investment: People who can not afford houses would be less likely to buy, and you can rent instead. Bankers presumably more attention.
The removal of these buyers in the market could cause home prices to fall, however - which would help first time buyers, but hurt those who already own homes.
Through the three proposals submitted to Congress rather than a single recommendation, the administration avoids a politically delicate task that the new financial reform bill failed to do.
Also exert pressure on the Republicans in Congress have blamed Fannie and Freddie financial crisis, but have yet to offer a viable plan for reform. Democrats control the Senate, so any new policy would be approved by a divided Congress.
Republicans praised the White House at least start a serious discussion.
Conservative Rep. Jeb Hensarling, R-Texas, criticized the report for lack of details, but said it moved the debate "on whether the timing and manner in which wind down the commitments of taxpayers to Fannie and Freddie." Hensarling had pushed the legislation last year to drastically reduce the role of government in the housing market.
"If the White House is really signaling that they are willing to do something, it is likely that could happen in a matter of months," he said in an interview.
The administration can take some immediate action without congressional approval. It may require larger down payments on loans obtained federal guarantees, bar Fannie and Freddie to buy mortgages that are too large, or increase the fees charged.
Those steps would make a government-backed mortgages more expensive and get more private money into the market.
"When the government stops talking and starts working groups to flesh this, you will see a significant private capital is injected into the mortgage market," said Karen Shaw Petrou, who advises banks on the Federal Government's policy for Google Finance Analytics.
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