Fannie and Freddie Mortgage Caps to Fall this Fall
July 7th, 2011
Currently, Fannie Mae and Freddie Mac will insure mortgages up to the amount of $729,750 in some areas of the country. That is a lot of money for taxpayers to be on the hook for should borrowers holding those mortgages default. As a result, starting this fall, Fannie and Freddie mortgage caps will be reduced to $625,500 or less in many counties around the country[1]. While this is good news because it reduced the amount of government involvement in propping up the housing market, it could be bad news for housing prices. With Fannie and Freddie backing out of “jumbo” loans, these loans will likely start to carry higher interest rates and require larger down payments. As a result, borrowing prices will rise and home prices could fall as a result.
This cap on mortgages is just one way that lawmakers are hoping to scale back Fannie and Freddies’ role in housing finance over the next year. Gary Miller (CA-R) wants to phase out the two GSEs entirely and create one government-run entity that will purchase mortgages and repackage them as government securities[2]. The company would not have shareholder investors. Currently, Fannie Mae and Freddie Mac are operating with “soaring losses” under federal conservatorship and currently back more than 85 percent of all U.S. residential mortgages in some form or fashion.
Do you think that Fannie Mae and Freddie Mac should be phased out? Is the idea of replacing them with a single government entity a good one?
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[1] http://www.npr.org/blogs/money/2011/07/06/137645501/govt-takes-a-baby-step-back-from-housing-market
[2] http://www.reuters.com/article/2011/07/06/usa-housing-gses-idUSN1E7651PG20110706
July 8th, 2011 at 2:45 AM
Yup, good idea: Replace the twin government wolves with a single, stand-alone Predator of the same species as before…Yup, CONTINUING Government mismanagement of and predation on that which starts out as a private business obligation.
It is not the function of our government to replace or “shoulder out” private entities with public agencies, nor to “prop up” any particular segment of the economy. If it makes sound financial sense, Private Enterprise will find a way to do it more reliably, cost-effectively and on a voluntary basis: If you don’t want to invest in it, no one’s gonna threaten you with armed assault, followed by jail time, if you don’t “voluntarily contribute”. The ‘Treasury’ will.
Fire the ‘twins’ and let the Market take over.