Privatization and Other Changes in Store for the Mortgage Industry
An FHA mortgage loan may be harder to come by in the future because of a change of the role of the federal government in the housing market, according to real estate professionals “in the know” about the situation. The National Association of Home Builders (NAHB) has been actively lobbying in Congress about new plans to privatize the mortgage lending industry. Unbeknownst to most, Fannie Mae and Freddie Mac are not federally owned mortgage companies. Both of these companies were privatized and taken public over 20 years ago. However, the reputations of both of these companies in the real estate industry have made it so that they are relied upon by most lenders both nationally and internationally to be federally backed for FHA loans.
The majority of FHA loans are offered by Fannie Mae and Freddie Mac. With the closure of these 2 companies and the privatization of the mortgage sector, it could become very expensive in the future for home buyers to purchase a new or previously owned home. FHA loans may be phased out altogether or modified so that they do not achieve the purpose for which they were created in the Roosevelt era – to provide an “easy” way for low-income families to qualify for a mortgage. The names Fannie Mae and Freddie Mac are actually based on the departments of the federal government which were in charge of their structure and development – Federal National Mortgage Association (Fannie) and the Federal Home Loan Mortgage Corporation (Freddie). Mortgage bonds issued by Fannie Mae, Freddie Mac and Ginnie Mae still fund more than 90% of new home loans. Bank portfolios and other private lending make up the rest.
A legislative proposal called the Protecting American Taxpayers and Homeowners (PATH) Act is now being discussed by Congress and the NAHB (National Association of Home Builders). As of now, the PATH Act is shying away from ANY government involvement. However, this is not the direction in which the NAHB wants it to go.
“NAHB believes federal support is particularly important to ensure that 30-year, fixed-rate mortgages, the bedrock of the nation’s housing finance system since the 1930s, remain available at reasonable interest rates and terms,” said NAHB CEO Jerry Howard. “As currently drafted, the PATH Act does not provide the federal support necessary to ensure a strong and liquid housing finance system, and we urge the committee to make the necessary changes. The historical record clearly shows that the private sector is not capable of providing a consistent and adequate supply of housing credit without a federal backstop,” he said.
As of now, FHA loans backed by Fannie Mae and Freddie Mac make it so that first-time home buyers can have a lower down payment as well as a lower interest rate when they apply for a loan. Turning over all mortgages to the private sector would make it virtually impossible for lower income families to afford a home loan. Nationally in the real estate industry, trending opinions are that FHA loans and the federal government should remain a part of the mortgage industry. Right now, the United States has the highest rate of homeownership compared to other first world countries in Europe. Most in the industry would like it to remain that way.
“Once people are putting their own money on the line instead of the government’s, I think you would see a rate increase, the cost to access mortgages would probably be higher,” says Chris Brinson, Fidelity Homestead Savings Bank regional lending manager.
As of now, no agreement has been reached either in government or amongst lenders. The fate of the future homeowner lies in the hands of Congress as well as representative of Fannie Mae and Freddie Mac. The dream of homeownership must not be allowed to “die” as the real estate industry is also partially responsible in rescuing the economy after the Recession. It will be up to organizations such as the NAHB to tirelessly work on a solution until it has been finalized.
