GOP unveils eight Fannie and Freddie reform bills
Kai Ryssdal: Reports of a rebound in the housing market turn out to have been greatly exaggerated. According to a key housing indicator out this morning — the S&P/Case-Shiller Index — Washington D.C. was the only top 20 market in the country to see a rise in home prices last month, and even then, only a .10 percent increase.
The news comes the same day House Republicans announced their plan to shut down Fannie Mae and Freddie Mac, the two government-owned mortgage companies that guarantee about two-thirds of all new mortgages issued here. Their basic idea of the House GOP is to get more private banks guaranteeing loans and so gradually minimize the role the government has to play. But the banks say, hold on just a second, got to make it worth our while.
Marketplace’s Nancy Marshall Genzer explains.
Nancy Marshall Genzer: Banks have stayed away from the loan guarantee game. It was easier to sell their loans to Fannie or Freddie, and let them take the risk of guaranteeing mortgages. Now, private banks are saying, ‘If you want us to play the guarantee game, it’ll cost ya.’
Anthony Sanders: Consumers pay for everything.
Anthony Sanders teaches real estate finance at George Mason University. He says private banks would charge borrowers a higher fee to guarantee their loans than Fannie and Freddie did. It would be rolled into mortgages.
Sanders: Loan guarantee fees would have to go up at least 100 basis points. That’s one full percentage point.
And, the banks are likely to bump up interest rates a bit. They’ll also demand bigger down payments.
Guy Cecala publishes Inside Mortgage Finance. He says the higher bank fees could end up pushing buyers out of the market, at least temporarily.
Guy Cecala: Forcing first-time homebuyers to wait until they can save up a down payment. Forcing people with tarnished credit to improve their credit over a period of time.
Lawmakers do want the private sector to step in here, but they also want to minimize the pain to homebuyers. At one point, there were calls to kill off Fannie and Freddie. Now, says Karen Petrou of Federal Financial Analytics, the view from Congress is:
Karen Petrou: That Fannie and Freddie should be gradually wound down, not executed.
The idea is not to pull the welcome mat out from under homebuyers’ feet. Just to make them save up more, and pay a little more more, so private banks will be more willing to guarantee their mortgages.
In Washington, I’m Nancy Marshall Genzer for Marketplace.
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