Skip to main content
Report this ad

See also:

Good-bye Fannie Mae

The "White Papers" out-line how the Government can get out of the home loan business
The "White Papers" out-line how the Government can get out of the home loan business

Early today, President Obama and his staff released the "white papers". This set of documents outlines how the Federal Government will begin to wind down Fannie Mae and Freddie Mac. Fannie and Freddie are two of the Government sponsored entities who helped fuel the fires of our current crash in the housing market.

Over the last two years a plethora of new regulations have been instituted to curb the risky financial activities of Wall Street, commercial banks, mortgage lenders, and even consumers. The Dodds-Frank Act has made it more difficult for mortgage professionals to assist even highly qualified clients in getting a home loan. Sadly though, not a single piece of financial reform or new legislation out of Washington prior to today has spoken to the heart of the problem, Fannie Mae and Freddie Mac.

These two government-sponsored enterprises (Fannie & Freddie), which ran it's business as a for-profit company until their bail-out in 2008, were rescued by the government and taxpayers as the housing market began to crumble and borrowers began to default in record numbers. To date, the two "companies" have received over $150 billion in taxpayer money in order to stay afloat and service bad loans.

In a change to the Wall-street versus Main-street rhetoric that has been a political talking point since the 2008 campaign, the White House is now admitting that Fannie Mae and Freddie Mac should be pricing their loan guarantees and underwriting home-loans to the same standards as private banks.

Additionally, the plan unveiled today aims to fix "fundamental flaws" in the mortgage market by beginning to reduce the government's role in the housing finance market. The report even goes as far as suggesting that Fannie Mae and Freddie Mac should be completely dissolved once enough private money comes back to the market place and begins investing in mortgages once again.

In the short term, the paper recommends that Congress should allow a temporary increase in conforming loan limits. This would assist clients in high cost areas like Southern California to take advantage of lower interest rates for the next few years.

Unfortunately, in a move that may eventually be adopted by the FHA, the plan calls for gradually increasing down payments requirements for loans backed by the Government.

Overall, this important move by the Obama administration will fundamentally change how loans are underwritten and provided to consumers.


Report this ad