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Geithner warns of risks in mortgage finance system
U.S. Treasury Secretary Timothy Geithner attends the first session of the G-20 Financial Ministers and Central Governors meeting in Gyeongju, South Korea.
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BOB MOON: Treasury Secretary Timothy Geithner told Congress yesterday that the U.S. needs to overhaul the mortgage finance system -- and decide soon what to do about mortgage giants Fannie Mae and Freddie Mac. They've been lumbering along since they were taken over by the government at the height of the financial crisis.
Marketplace's Nancy Marshall Genzer joins us now, live, from Washington. Good morning, Nancy.
NANCY MARSHALL GENZER: Good morning Bob.
MOON: So we've heard the Obama administration say it wants to get out of the mortgage business. Did we learn anything new?
GENZER: Well, we got a timeline. Geithner told the House Financial Services Committee he wants Congress to approve a plan for overhauling Fannie and Freddie in the next two years. Bob, you may remember, last month the Obama administration outlined some different scenarios. One would get Fannie and Freddie out of the mortgage business all together. Right now, they guarantee or own about half of all U.S. mortgages. The second option would have the government back private mortgages, only during an economic crisis.
MOON: Now Congress would have to approve the deal, obviously. So, what was the political reaction to all of this?
GENZER: Some Republicans were quite positive. They like the idea of shrinking the government's role in the mortgage business. A lot of conservatives like the first option, where the only government agency guaranteeing home loans would be the Federal Housing Administration. But the Obama administration is getting some push back from Democrats. Some Democrats argue that, without government guarantees, it'll be very expensive for people in high-priced housing markets -- like Los Angeles -- to get loans.
MOON: OK, so we've gone through the options for Fannie and Freddie. How would that affect me, though if I go out and try to buy a house?
GENZER: Well, Bob, you'd have to dig into your wallet a bit more. Your down payment could be significantly higher. The thinking is, without Fannie and Freddie backing them, banks could require a 20 percent down payment. And you'd have to go through stricter checks on your credit history.
MOON: Hurry up, huh? Nancy Marshall-Genzer, thanks.
GENZER: You're welcome.
We should all follow this story with interest, as it deals with a massive re-casting of the American economy. Several prior responders are right on in explaining how drastically this proposed change will impact the housing market. I would estimate a shrinkage in the pool of buyers of around 33%, much larger in some important segments, such as the first-time buyer. As any Econ 1A student can tell you, the result of this shrinkage will be a commensurate decline in property values. This will take trillions of dollars of equity out of the American economy. For a glimpse of the future that Mr. Geithner's proposal holds in store, one need only dig up an economic forecast for 1947.
"Some Democrats argue that, without government guarantees, it'll be very expensive for people in high-priced housing markets -- like Los Angeles -- to get loans."
The government has no business or responsibility helping someone buy a home that is 'high-priced'. If you cannot afford to live somewhere then you need to pack up and move to where it is more affordable - be it another city or state.
Just take a look at the census data, people are moving from expensive cities to less expensive ones in large numbers. This will eventually impact real estate values in both markets.
If you want to live and own in a high-priced city then you should take that burden full on by yourself.
Listen, the private sector has been salivating over the thoughts of taking over this agency for a very long time. If you think the mortgage industry will benefit by this, you are dreaming and living in a REAL fantasy world. Only married couples making a combined total income of AT LEAST $100,000.00 or a single person making at least $80,000.00 will qualify for a loan of $200,000.00 On top of 35% down, 750 min credit score, ect. That is their target goal.
"GENZER: Well, Bob, you'd have to dig into your wallet a bit more. Your down payment could be significantly higher."
You would also have to line up either gargantuan monthly payments to meet your mortgage obligation, or, have regular payments with a gargantuan balloon to pop on day 365 of that same 5th year.
no more 30yr fixed mortgage,
no more penalty free pre-payment.
Reps and treasury are playing a dangerous game, and should just eat their words while they are still small, and haven't ripened into grapes of wrath.
You can thanks reps like Miller[CA-R] yesterday who pointed out the insanity of charging f&f 10% when every other TBTF recieved much better terms, and on top of that, the payment of such harsh terms only leads to further need of support.
This is drop-dead, shake-them-by-the shoulders, insane.
GSEs did exactly what they were supposed to do.
Ovens, when they burn your careless fingers, do exactly what they are supposed to do.
The potential damage to the middle class should F&F be wiped away will make the wisconsin union flap, net neutrality, and the SCOTUS effective treatment of corporations as human, look like pillow fights.
What is wrong with putting down 20% on a purchase of a home. When I purchased my home I had to put down 20% or no mortgage. The problem with this country is people live well beyond their means and then look to the government to GIVE them services they can't pay for because they are living high on the hog and not having the cash or savings to pay for it. Sound familar?
I think it's odd that the GSE's (Fannie Mae & Freddie Mac) are implementing changes in the mortgage process by requiring the Uniform Loan Delivery Dataset(ULDD) and the Uniform Appraisal Dataset (UAD), to be completed by mortgage professionals, effective 12/1/2011 & 9/1/2011, respectively, if they are going to be disolved. Certified General Appraiser.
