Is the Nation ready to lose Fannie Mae and Freddie Mac?
Is the Nation ready to lose Fannie Mae and Freddie Mac? Mortgage giants Fannie Mae and Freddie Mac fears total phase out as a federal housing regulator plans to scale them back, the same way as Obama’s administration pressures the taxpayer-backed companies to extend more support and assistance to homeowners.
The Federal Housing Finance Agency, which manages Fannie and Freddie has been planning to shut down the companies by increasing fees charged to borrowers who terminates mortgages. If the cost of receiving a taxpayer-backed mortgage rises, more borrowers will seek private lenders. In this case, loans are not backed by the government.
Obama’s administration intends to increase the government’s role and control in housing; this is in conflict with measures taken by Fannie and Freddie.
The administration has already released a white paper commanding for a gradual phase down of Fannie and Freddie a year ago, after its risky home loans cost taxpayers more than an astonishing $130 billion.
This is contrary to the White House’s request to Fannie and Freddie before, to take measures to help homeowners so as to raise home values, circulate cash in the economy and to generally help borrowers avoid losing their homes.
Government officials have asked both companies to reduce the debts owed by homeowners and to offer refinancing at lower interest rates. But these measures entail the companies to take new risks with the taxpayer money, this in turn will make the housing market more dependent on the government.
The FHFA, which regulates the firms in a legal arrangement known as conservatorship, has declined taking means that would burden Fannie and Freddie with more taxpayer losses.
Though wind-down is at hand for these two firms, Fannie and Freddie continues to receive requests to do more. This is now a challenge for FHFA as a conservator.
Fannie and Freddie are essential driving force in the $10 trillion housing finance market. They operate through a banking system which connects investors around the globe with Americans looking to buy homes. They have more than enough cash reserves available to fund mortgages, thus, allowing buyers to get affordable homes.
These companies, along with the Federal Housing Administration, have ruled over the housing market in the past four years. During that time, banks stopped lending due to the economic fall down.
The private market has not yet recuperated from the loss together with the rest of the economy. The risk to the taxpayers concerns the policymakers as the government takes its role in the large footprint in the mortgage market. Obama’s administration continues to make plans on restoring the housing financing, and will publish more of its details when available.
However, Rep. Scotty Garrett believes that the housing sector will continue to be a hindrance to the economy’s recovery until the current housing finance system is changed to a purely private market solution. He points out that the marketplace could suffer if Fannie and Freddie gets wind down.
But many disagreed. Top administration advisers and other economists stressed that the government must still play a significant role in the housing system.
The FHFA is now coming up with a new mortgage system and they also came up with an idea of pooling loans into bundles and selling them to investors. Moreover, they are studying what Fannie and Freddie can do to help decrease the foreclosure crisis of the nation while not increasing the taxpayer losses. This includes facilitating short sales and deeds-in-lieu.
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