Radical Change In Mortgage Lending

I got the following message from the Congressional Budget Office last week about H.R. 2767, Protecting American Taxpayers and Homeowners Act of 2013.

“H.R. 2767 would require the Federal Housing Finance Agency to repeal the charters of Fannie Mae and Freddie Mac and end the operations of those firms five years after enactment of the bill. Thus, after 2018, those two government-sponsored enterprises (GSEs) would cease to guarantee new mortgages.”

How significant would it be to the housing market if Freddie and Fannie went away? According to CNN/Fortune & Money these two GSE’s secure 80 percent of all home loans in America. US News and World Report says it’s closer to 90 percent.

Freddie and Fannie

This is how it works. “Fannie Mae and Freddie Mac buy mortgages from lenders and either hold these mortgages in their portfolios or package the loans into mortgage-backed securities (MBS) that are sold to the public. Lenders use the cash raised by selling mortgages to the Enterprises to engage in further lending,” according to the Federal Housing Finance Agency.

To put it simply, Freddie and Fannie guarantees the mortgages your lender makes to you. They are also responsible for setting the loan standards made to the borrower. Freddie and Fannie then buy your loan from the primary lender and then sell your loan on the open market. One of the main reasons why we had the housing bust was because Freddie and Fannie kept lowering lending standards.

Why are Freddie and Fannie about to be terminated? In 2008 the federal government had to bail out Freddie and Fannie to the tune of almost $200 billion due to the housing crash. Interesting concept when the federal government bails out the federal government.

Housing and Home Loans

What happens if the two GSE’s that back 80-90 percent of all home loans go away? The private sector happens. This even has the endorsement of the President, sort of.

Last August Obama was in Phoenix commenting on responsible homeownership. He said, “I believe that our housing system should operate where there’s a limited government role and private lending should be the backbone of the housing market”. I’m not sure how limited Obama wants the government to be. He went on to say, “We’ve got to strengthen the FHA so it gives today’s families the same kind of chance it gave my grandparents to buy a home.”

FHA is the Federal Housing Agency. It’s been around since 1934 and is the largest insurer of mortgages in the world.

margaret hitchcock mortgage lendingLending practices are going to change radically in the coming years. I believe the private sector can offer the kind of hope and change we can count on.

Margaret Hitchcock is a Realtor and owner/operator of Hitchcock Realty in Morehead City along the Crystal Coast of North Carolina. Whether it is a home or condo, on the beach or mainland be sure to contact Margaret today. Visit her online at www.HitchcockRealty.net or call (252) 269-2893

 

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