bpwallace49 Posted February 12, 2011 Share Posted February 12, 2011 White House wants less gov't in mortgage systemWhite House wants to end Fannie Mae and Freddie Mac; mortgages would likely be more expensive Share retweet EmailPrint.. President Barack Obama returns to the White House in Washington, Thursday, Feb. 10, 2011, after traveling to Marquette, Mich.. (AP Photo/Charles Dharapak) Daniel Wagner and Derek Kravitz, AP Business Writers, On Friday February 11, 2011, 5:57 pm EST WASHINGTON (AP) -- The Obama administration wants to shrink the government's role in the mortgage system -- a proposal that would remake decades of federal policy aimed at getting Americans to buy homes and would probably make home loans more expensive across the board. The Treasury Department rolled out a plan Friday to slowly dissolve Fannie Mae and Freddie Mac, the government-sponsored programs that bought up mortgages to encourage more lending and required bailouts during the 2008 financial crisis. Exactly how far the government's role in mortgages would be reduced was left to Congress to decide, but all three options the administration presented would create a housing finance system that relies far more on private money. "It's clear the administration wants the private sector to take a more prominent role in the mortgage rates, and in order for that to happen, mortgage rates have to go up," said Thomas Lawler, a housing economist in Virginia. Abolishing Fannie and Freddie would rewrite 70 years of federal housing policy, from Fannie's creation as part of the New Deal to President George W. Bush's drive for an "ownership society" in the 2000s. It would transform how homes are bought and redefine who can afford them. Treasury Secretary Timothy Geithner said the plan would probably not happen for at least five years and would proceed "very carefully." In the meantime, he said the companies would have the cash they need to meet their existing obligations. "We think there's very broad consensus on the Hill and in the broader private market that there needs to be a transition to a much smaller role for the government," he said. Ever since the housing market went bust and the country fell into a financial crisis, pressure has been building for the government to do away with Fannie and Freddie and reduce taxpayer exposure to risk. Fannie and Freddie own or guarantee about half of all mortgages in the United States. Along with other federal agencies, they played some part in almost 90 percent of new mortgages over the past year. The two agencies buy mortgage loans from primary lenders, pool them, and sell them with a guarantee that investors will be paid even if borrowers default. The idea is to give people a chance to buy homes at affordable interest rates. But the two nearly collapsed in 2008, after the subprime mortgage market collapsed and defaults and foreclosures piled up. So far, they have cost taxpayers almost $150 billion and could cost up to $259 billion, the FHFA says. The first option proposed by the administration would give the government no role beyond helping poorer and middle-class borrowers through agencies like the Federal Housing Administration, which provides insurance on mortgage loans. The second and third options would give the government a role as an insurer of mortgages, and each would prompt mortgage companies to pass along fees to borrowers. Under one, the government would step in to guarantee private mortgages during a severe economic downturn, such as another housing slump, but would provide limited support during normal times. The third option would be more complex. The government would insure a targeted range of mortgage investments that already are guaranteed by private insurers -- serving as a "reinsurance" broker to those financing companies. In the event the private insurers couldn't pay the owners of the mortgage investments, the government insurance would pay. The third option would leave the government with the largest role and probably have the smallest impact on mortgage rates. While lenders would have to pay fees, which would ordinarily drive rates higher, the government guarantees would also make mortgages a safer investment. That would attract more private money and hold rates down. "Compared to the way things operated in the past, credit would be a little less easy to obtain, and the terms would be a little less attractive," said Nigel Gault, chief U.S. economist with IHS Global Insight. This option would face sharp opposition from lawmakers. They fear that private lenders would inevitably take on too much risk if they had the government as a backstop. Democrats and consumer groups said they feared mortgage rates would soar if the housing finance system were left mainly to the private market, and that fewer people could afford traditional 30-year, fixed-rate mortgages. Mortgage rates today are rising but are still some of the lowest ever recorded. The national average for a 30-year, fixed loan is about 5 percent. The changes would be felt by nearly everyone who applies for a mortgage, from first-time homebuyers to middle-aged buyers trading up for a bigger house to older buyers scaling back to a smaller home, said Joseph Murin, a former president of Ginnie Mae, the government-owned corporation that guarantees bonds backed by home mortgages. Gault said there is an upside to making housing a less attractive investment: People who can't afford houses would be less likely to buy them, and might rent instead. Bankers would presumably lend more carefully. Removing those buyers from the market could cause home prices to fall, however -- which would help first-time buyers but hurt those who already own homes. By sending Congress three proposals instead of a single recommendation, the administration sidesteps a politically delicate task that the new financial overhaul law left undone. It also put pressure on Republicans in Congress, who have blamed Fannie and Freddie for the financial crisis but have yet to offer a viable plan for reforming them. Democrats control the Senate, so any new policy would have to be approved by a split Congress. Republicans praised the White House for at least starting a serious discussion. Conservative Rep. Jeb Hensarling, R-Texas, criticized the report for lacking detail but said it moved the debate "from if to when and how we wind down any taxpayer commitments to Fannie and Freddie." Hensarling had pushed legislation last year to sharply reduce the government's role in the housing market. "If the White House is truly signaling they are ready to do something, it could probably happen in a matter of months," he said in an interview. The administration can take some steps immediately without Congress' approval. It could require bigger down payments for loans that get federal guarantees, bar Fannie and Freddie from buying mortgages that are too big, or increase the fees they charge. Those steps would make a government-backed mortgage more expensive and draw more private money into the market. "When the administration stops talking task forces and begins to flesh this out, you'll see significant private capital injected into the mortgage market," said Karen Shaw Petrou, who advises banks on government policy for Federal Financial Analytics. Associated Press Writer Alan Fram contributed to this report Holy moley. I guess the socialist closet m00slim that started a health care plan that was originally designed and championed by the Republicans and is a sleeper cell terrorist fist bumper from Kenya is really a realist that wants to get things done? Seriously this is a tremndous step in the right direction. Very interesting options . . . . Quote Link to comment Share on other sites More sharing options...
redrumjuice Posted February 12, 2011 Share Posted February 12, 2011 health care plan that was originally designed and championed by the Republicans What in the world are you talking about? Quote Link to comment Share on other sites More sharing options...
bpwallace49 Posted February 12, 2011 Author Share Posted February 12, 2011 What in the world are you talking about? Look up your history son. You might learn something The individual mandate was originally suggested by the Republicans in response to Clinton's failed attempt at health care reform. The whole concept of "individual responsibility"? The key to the health care bill instead of single payer is the individual mandate. That core concept (that is being challenged, and without the entire plan is null and void) was designed by the Republicans way back in 1993. Now please at least try to stay on target with this thread. It is about housing and the gubment getting out of the housing business . . . Quote Link to comment Share on other sites More sharing options...
wiegie Posted February 12, 2011 Share Posted February 12, 2011 Freddie and Fannie should either be owned by the government or else completely privatized--the way they were set up as a GSE was just plain stupid. (This is my professional opinion that I have included in a research paper I submitted to a journal back in December.) My guess is that they will privatize Freddie and Fannie and then expand the role of Ginnie Mae. (That's what I would do anyway.) Quote Link to comment Share on other sites More sharing options...
BeeR Posted February 12, 2011 Share Posted February 12, 2011 He's a Republican now? Does that mean he'll start pimping craigslist for dates? (and with those looks, good luck w/that) Quote Link to comment Share on other sites More sharing options...
Perchoutofwater Posted February 12, 2011 Share Posted February 12, 2011 If Obama can get rid of Fannie and Freddie, I'll definitely give him props for that. Quote Link to comment Share on other sites More sharing options...
Avernus Posted February 12, 2011 Share Posted February 12, 2011 If Obama can get rid of Fannie and Freddie, I'll definitely give him props for that. exactly...he'll start looking like the President I voted for... Quote Link to comment Share on other sites More sharing options...
Ursa Majoris Posted February 12, 2011 Share Posted February 12, 2011 Freddie and Fannie should either be owned by the government or else completely privatized--the way they were set up as a GSE was just plain stupid. (This is my professional opinion that I have included in a research paper I submitted to a journal back in December.) My guess is that they will privatize Freddie and Fannie and then expand the role of Ginnie Mae. (That's what I would do anyway.) I fail to see why the government has any role at all in mortgages. I'd really like to see the original lender have to keep the mortgage. This would make them the risk taker, set mortgage rates at market levels and set the entire housing price market at it's natural level too. Quote Link to comment Share on other sites More sharing options...
WaterMan Posted February 12, 2011 Share Posted February 12, 2011 Look up your history son. I think there are people who will be able to sell more houses without the government. Quote Link to comment Share on other sites More sharing options...
Deathpig Posted February 12, 2011 Share Posted February 12, 2011 As much as this is something everyone would like to hear, the wet blanket in me just hangs on this: Exactly how far the government's role in mortgages would be reduced was left to Congress to decide... Which, in Washington translation, means empty talk from the White House to score political points with independents and swing voters while dumping action on Congress where they can bicker at each other trying to score political points locally while accomplishing nothing. I might be too bitter to even follow this crap anymore. Quote Link to comment Share on other sites More sharing options...
bpwallace49 Posted February 12, 2011 Author Share Posted February 12, 2011 As much as this is something everyone would like to hear, the wet blanket in me just hangs on this: Which, in Washington translation, means empty talk from the White House to score political points with independents and swing voters while dumping action on Congress where they can bicker at each other trying to score political points locally while accomplishing nothing. I might be too bitter to even follow this crap anymore. The right has the control of the house, and can direct a bill towards the idea that the WH has endorsed. If it passes there, then the senate risks putting themselves on an island with a refusal. The good news is that if the WH is for it, that can help win over more moderate Dems in the Senate towards that cause. Dont underestimate the WH endorsement. If something wasnt said, do you think that anything would be done? Of course not. This also puts the onus on the House to do some substantive work versus bills they know are doomed for failure before they sttart. Quote Link to comment Share on other sites More sharing options...
redrumjuice Posted February 12, 2011 Share Posted February 12, 2011 lol, yeah something from 20 years ago is exactly the same thing as husseincare. REPEAL! Quote Link to comment Share on other sites More sharing options...
Square Posted February 14, 2011 Share Posted February 14, 2011 I fail to see why the government has any role at all in mortgages. I'd really like to see the original lender have to keep the mortgage. This would make them the risk taker, set mortgage rates at market levels and set the entire housing price market at it's natural level too. Maybe I'm being a simpleton, but that makes sense to me. Make it like a car loan you have with a bank. Of course the road from where we are at to where we would be might be difficult to manage. Quote Link to comment Share on other sites More sharing options...
wiegie Posted February 14, 2011 Share Posted February 14, 2011 I'll mention that back before the government got involved in the housing market, the typical mortgage required a 50% downpayment and had to be paid off in about 7 years. (Not saying that will happen again, but it's not overly clear that the cons of government involvement in the housing market outweigh the pros.) Also, forcing lenders to hold mortgages to maturity could also really limit the mortgage market (in a bad way). The selling off of mortgages was only a small part of the financial crisis and there are much better ways of fixing the problems than taking such a drastic step as Ursa suggests. Quote Link to comment Share on other sites More sharing options...
Azazello1313 Posted February 14, 2011 Share Posted February 14, 2011 (edited) I fail to see why the government has any role at all in mortgages. same reason they have a role in almost anything else, do-gooders trying to channel "good behavior" and to control people for their own betterment. I'd really like to see the original lender have to keep the mortgage. This would make them the risk taker, set mortgage rates at market levels and set the entire housing price market at it's natural level too. meh, people should be able to buy and sell the asset, like anything else. if someone wants to trade less risk for more risk, or vice versa, that should be their prerogative. the whole "securitization" process got a little exotic as far as hiding risk -- I think that could be addressed without the drastic step you propose. in any case, here's a less fawning take on the proposal, from an economist who used to work at freddie mac. Edited February 14, 2011 by Azazello1313 Quote Link to comment Share on other sites More sharing options...
Azazello1313 Posted February 14, 2011 Share Posted February 14, 2011 I'll mention that back before the government got involved in the housing market, the typical mortgage required a 50% downpayment and had to be paid off in about 7 years. so you're saying that government involvement is directly responsible for forcing riskier loans? Quote Link to comment Share on other sites More sharing options...
Savage Beatings Posted February 14, 2011 Share Posted February 14, 2011 I am totally voting for Obama now for re-election. Quote Link to comment Share on other sites More sharing options...
Ursa Majoris Posted February 14, 2011 Share Posted February 14, 2011 I'll mention that back before the government got involved in the housing market, the typical mortgage required a 50% downpayment and had to be paid off in about 7 years. (Not saying that will happen again, but it's not overly clear that the cons of government involvement in the housing market outweigh the pros.) Also, forcing lenders to hold mortgages to maturity could also really limit the mortgage market (in a bad way). The selling off of mortgages was only a small part of the financial crisis and there are much better ways of fixing the problems than taking such a drastic step as Ursa suggests. I don't see that mortgages would have to go back to 50% down and a brief payoff period. That was the case before pretty much anyone owned a home other than the wealthy. When the government got involved, it appears that risk diminished. I'd see the kind of rates for car loans and the like being the norm. I fully understand the ramifications of what I was suggesting and there's a lot of room for modification but attaching risk to the lender would surely achieve the three things I mentioned. Perhaps the period of retention could be shortened or something but the essential point is for everyone involved to have skin in the game, not just to be able to play pass the parcel and pocket the cash risk-free. Most importantly, however the whole thing is put together, business must bear all the risk with Joe Taxpayer having none, other than the original borrower of course. Quote Link to comment Share on other sites More sharing options...
wiegie Posted February 14, 2011 Share Posted February 14, 2011 so you're saying that government involvement is directly responsible for forcing riskier loans? nope--they didn't force anybody to make riskier loans Quote Link to comment Share on other sites More sharing options...
Azazello1313 Posted February 14, 2011 Share Posted February 14, 2011 nope--they didn't force anybody to make riskier loans ok, then you're saying the government merely enticed them by underwriting all of the risk at taxpayer expense. either way, you would seem to be giving the government credit for "affordable housing", yet somehow you don't think it deserves any of the blame for that going horribly awry. Quote Link to comment Share on other sites More sharing options...
borge007 Posted February 14, 2011 Share Posted February 14, 2011 I am totally voting for Obama now for re-election. It's about time you came to your senses! Quote Link to comment Share on other sites More sharing options...
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