President Obama's administration has leaked several key parts of its plans for reforming Fannie Mae and Freddie mac, the mortgage giants which are currently 95 percent controlled by the government. In keeping with the administration's prior track record, it leaked key parts of the so-called “white paper”, which is expected to be released later this week.
What is already known is that the goal of any recommendations will be to reduce the government's role in the two mortgage companies, which required the government's support to remain afloat during the recent recession. Republicans want the the government to pull out sooner rather than later, but experts say the transition will take at least five years.
The administration's pre-emptive leak included the idea that the loan limit Fannie, Freddie, and FHA backed loans, which currently stands at $729,750, should be reduced to $625,000. Insiders say that the reduction to the limit wouldn't make a huge difference, considering that the limit was $417,000 before the housing crash, then had to be raised when the government proved to be the only viable backer of loans available.
It is a near-certainty that the white paper will contain plans to make Fannie and Freddie loans more expensive, which insiders say will be accomplished by raising guarantee fees, which would, of course, make privately-backed mortgages cheaper. This change could be accomplished without legislation, but would create troubles for the nation's Federal Housing Administration.
Many insiders claim that the FHA has grown too large, including the agency's commissioner David Stevens. Tougher Qualified Mortgage Standards, which have been mandated by the Dodd-Frank Act, would push more borrowers to FHA-backed loans, when the FHA has too large a market share already. FHA is not subject to the QRM standard.
Regardless of how this all plays out, one thing seems all but certain: the price of mortgages is going to go up.
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