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New housing plan could phase out Fannie and Freddie
Freddie Mac headquarters in McClean, Va.
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TEXT OF STORY
ADRIENE HILL: The White House is expected to offer up some ideas for the future of Fannie Mae and Freddie Mac by the end of the week. According the Wall Street Journal, one idea is to phase out the government backed mortgage companies without replacing them. That could leave most future home loans to the private market.
Marketplace's David Gura is with us now to help explain. Good morning David.
DAVID GURA: Hey Adriene.
HILL: So, what the biggest changes that a U.S. homebuyer might see coming from these proposals?
GURA: Well it will be more difficult and more expensive for home buyers to buy high priced homes. Right now the government helps home buyers purchase houses with a backstop on mortgages of up to about $730,000. That number would go down to $625,000. I talked to Susan Wachter, a real estate professor at Wharton. And I asked her how big a difference that $100,000 would make.
SUSAN WACHTER: It will make a big difference. Absolutely. And over time, this is likely to come down farther, as well.
Some people might think only well-heeled home buyers would feel that.
HILL: It's a lot of money, yeah.
GURA: But Wachter told me many customers would probably feel it especially in big cities.
HILL: Now do these proposals have a chance to actually become law? Is this going to happen?
GURA: Since the financial crisis U.S. taxpayers have spent about $135 billion on these two companies. So I don't think anybody's really thrilled about that. You know I think there's agreement the mortgage finance system needs to change. We haven't seen much in the way of concrete proposals or legislation. In other words, there's been a lot of talk but not a whole lot of action.
Susan Wachter told me she thinks the ball's rolling.
WACHTER: Industry needs to be at the table, housing folks need to be at the table. Congress obviously will be there. And the public as well
She says the government is going to move slowly and carefully so it won't upset the market.
HILL: Marketplace's David Gura, thanks so much.
GURA: Thank you.
The term "spent" indicates a past tense, with no recourse. The GSEs have the most stringent terms of pay-back compared to every other entity remotely considered TBTF. AIG had a similar 10% interest required on their assistance, but it was left optional whether they would pay the interest. Naturally their board quickly opted to pay double interest on the benevolent assistance provided them by the US taxpayer, and by double, I mean 0%.
The GSEs can pay this debt, but only if the usurious 10% interest on Senior pfds held by the treasury is reduced to a reasonable level. The only way this $135 busd becomes past tense is if F&F are rendered in such a way to be incapable to do anything about it. Review 3Q10. What happens if we get a repeat, or better for 4Q? They're on the mend, and the reforms are in place, in both practice, and mandate.
Beyond that, yes, the guarantee fees should be raised, the conforming limits lowered (only raised because the free-market 'freed' themselves from the market), and only quality loans should be made. (a sure thing after 1Q-2009, and now mandated by Dodd-Frank.)
Good luck to us all, and hopefully the PTB realize that F&F are one of few examples of things that went right where gov't interaction with private matters went right, at least before F&F became misused & abused in 2005-2008.
