In his state
of the union speech on January 28, 2014, Obama asked Congress to focus on
mortgage finance reform in the upcoming year. He stated, “Since the most
important investment many families make is their home, send me legislation that
protects taxpayers from footing the bill for a housing crisis ever again and
keeps the dream of home ownership alive for future generations.”
There have been proposals in the
Obama administration to overhaul Fannie Mae and Freddie Mac, the mortgage giants which
own or guarantee about 60% of all
mortgages in the United States. These government-sponsored enterprises (GSEs)
have prospered for decades by buying and selling mortgages to provide capital
to lenders and borrowers. However, when the housing
bubble burst in 2008, the federal government took ownership of the mortgage
giants, costing billions of dollars in taxpayer dollars to bail the companies
out of financial ruin. The housing
market is now in recovery and Fannie Mae and Freddie Mac are profiting once again, but
many government officials fear that another financial crisis is still possible.
The goal is to take away Fannie
Mae and Freddie Mac’s monopoly on
the mortgage market, limit the federal government’s role and risk, and to focus
on private
lending
instead. However, it will take years before the current system is completely
overhauled and replaced with one dominated by private lenders.
It is imperative that brokers
understand that the housing market is on its path to recovery, but may be
facing drastic changes over the next two to five years. Middle class consumers
may have difficulty obtaining a 30-year mortgage in a market that is run by
private lenders unless the reforms allow for some substantial governmental
intervention. We may only be in the early stages, but these proposals in
Congress will lead to one of the biggest reforms this country has seen in the
last decade.
