Is this Good-bye to Fannie and Freddie?

With the current budget deficit, it may not come as a surprise that the Obama administration has announced plans to phase out Fannie Mae and Freddie Mac.  According to an article by Realtor Magazine and available on Realtor.org, the White House has actually proposed multiple options to wind down the institutions.

▪ Reducing the size of the portfolio of mortgages held by Fannie and Freddie Mac by at least 10% a year.

▪ Creating an insurance fund for mortgages.  This fund would be maintained by premiums paid by lenders.

▪ Phasing out of government subsidies for mortgages by raising the fees charged to cover the risk of default.

▪ Increasing fees for borrowers and requiring larger down payments for mortgages.

Of course, there is concern among critics that the fragile housing market needs Fannie and Freddie’s influence to help buyers obtain mortgages and keep the industry afloat.  According to NAR President Ron Phipps:

Reducing the government’s involvement in the mortgage finance market is necessary for a healthy market, but should not be done at the expense of the economy or home buyers.  Any proposal for increasing fees and borrowing costs beyond actuarially sound levels will only make it harder for working, middle-class individuals to achieve home ownership, and only the wealthy will be able to achieve the American dream.”

On the other side, many have called for the closure of Fannie and Freddie after the housing market collapse was largely blamed on lack of effective oversight by the pseudo-government agencies.  This is a classic case of having your cake and eating it, too.  If we want the market to operate with less government intervention, there will be some heads that have to roll, and Fannie and Freddie may be the first.

Obviously, this will have far-reaching effects on short sales…especially “HAFA” short sales.  But for now, it’s all talk, and Fannie and Freddie are alive and well…or at least, alive and on life support thanks to taxpayers.

▪ Shrinking the size of the portfolio of mortgages held by Fannie Mae and Freddie Mac by at least 10 percent a year.
▪ Creating an insurance fund for mortgages, supported by premiums paid by lenders.
▪ Winding down government subsidies of mortgages by raising the fees charged to cover the risk of default.
▪ Raising fees for borrowers and requiring larger down payments for home loans.
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