What Will Happen to the Mortgage Finance System?
There has long been a general feeling that the American residential property sector is broken overall. While there was a sharp rebound in home sales once consumer confidence recuperated in 2013, we’ve seemed to have nevertheless hit a rut where the housing market is stalling.
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However, with recent attempts from Capitol Hill to reform the home lending process, there are some concrete areas that probably need reform. According to a new report from Reuters, the Senate Banking Committee could approve a bill to disassemble Fannie Mae and Freddie Mac. The ultimate endpoint of this bill would be to replace the two loan bodies with a transitory agency that provides a government mortgage guarantee that will only be offered once losses are handled by private finance entities.
It’s a convoluted process, even by the admission of those who’ve been watching its passage most closely. The Reuters story quotes the standing president of the Mortgage Bankers Association admitting, “This is complicated legislation”. The ultimate goal rests on doing away entirely with wing of the government that was propped upped during the bleakest period of the recession. There seems some contention that both agencies are doing more harm than good at this point, and that transitioning to private sector management would foster a culture of deeper accountability.
So What Would Happen if They’re Shuttered?
The Reuters article points out that during the depths of the recession Fannie and Freddie lost the government a net $187.5 billion in taxpayer funds. We’ve reached a point where the agencies have rebounded to profitability, and have returned more profits in dividends than they once took away as bailout aid. That being said, their flailing during the recession and danger to the U.S. Treasury if things go south has many within both the government and private interest looking for a better solution.
But the other side of the coin isn't completely safe either. There seems concern that pushing assets held under Fannie and Freddie into private ownership could compromise the paths to affordable housing for lower-income families. Alternately, it could lead to certain players gaining too strong a foothold across various services in the loan management process. In the case this slows home sales too drastically, it could undercut the housing recovery or destabilize home values.
Ultimately, the impact on the housing market for better or for worse will spring from the details of the bill itself. Current plans lay out that both agencies will be disassembled within five years of the bill’s passage, so we’re not slated to see a rapid transition. Ideally this will allow for financial adjustment and for potential errors in judgment to be curbed.