The US housing market is now showing modest signs of recovery, and Democrats and Republicans say they want to reduce the role of the government. But the economy is still fragile and, with a presidential election in November, they find that support is easier to give than to take away.
Washington has taken some steps to reduce its role in the market. Fannie, Freddie and the FHA have increased the fees they charge for their collateral, reducing the benefit of a secured loan and opening the door wider to private equity. Fannie and Freddie have also tightened their underwriting standards, requiring higher credit scores and sometimes higher down payments, which brings them closer to unsecured mortgages.
Nevertheless, many academics and some legislators have said the government should gradually lower the size limits of secured mortgages, a strategy that could avoid disrupting the housing market while testing the willingness of private capital to provide more market share. . Her own.
Check Out more About: how to qualify for FHA loan in Texas
It’s an idea that calls on affordable housing activists like John Taylor of the National Community Reinvestment Coalition, who says Fannie and Freddie should only pay down the mortgage for low- and middle-income families. “No one I know is buying a house for US $ 600,000 or US $ 700,000 that is not rich,” Taylor said.
The Conservatives would go further by reducing government support. Last year, the think tank of the American Enterprise Institute published a white paper calling on the government to reduce the loan limits of Fannie and Freddie by 20% per year until both companies are effectively eliminated.
The Obama administration wants to eliminate Fannie Mae and Freddie Mac and has promised to work with Congress to determine the upper bounds of future loans secured by both companies. And this accelerated the process of reducing the amount of loans in the portfolios of Fannie and Freddie. But he did not come up with a concrete proposal on how to reduce their roles as mortgage guarantors.
Even Republicans are reluctant to completely remove government from the housing industry.
“We had the support of the government for housing finance for the ’75s.” We can not get rid of all this, “said John Campbell, a Republican congressman who introduced legislation last year. to get rid of Fannie and Freddie while maintaining the government’s mortgage guarantees.
It’s a case of being burned in the last decade. If it’s guaranteed, I invest in this environment. And if it’s not guaranteed, I will not invest
WARY INVESTORS MORTGAGES
But any reduction in government support would mean higher mortgage rates, a minefield in an election year. So, even in a presidential campaign divided on the size of the government, the role of the government in the housing market is almost taboo.
Fannie and Freddie guarantee mortgages in wealthy areas of the country controlled by both Republicans and Democrats, suggesting why it is complicated even to cancel the guarantees for the rich. The Campbell District, for example, is part of Orange County, California, a high-priced area where data has shown that about eight in the 10 new mortgage loans were backed by Fannie or Freddie in 2010. In the Plymouth, Massachusetts, a prosperous county called Democratic, Fannie and Freddie supported about two-thirds of the new mortgages in 2010.
And while lawmakers and the administration agree on a plan to gradually reduce government support for mortgages, the private sector may not be ready to function alone.
Investors in the past, bought securities backed by mortgages remain wary of the housing market, in part because, three years after the end of the recession, the US economy is not out of ‘rut.
A downturn in the recession could drive down home prices and cause more mortgages to fail, a troubling prospect for creditors who lost money in the crisis.
“It’s a case of being burned over the last decade,” said Jay Brinkmann, chief economist at the Mortgage Bankers Association. “Investors say: If it’s guaranteed, I’m investing in this environment, and if it’s not guaranteed, I will not invest.”
Last year, Fannie and Freddie’s loan limit for high-priced areas dropped to US $ 625,500. But the FHA, which is administered separately, continued to support larger loans in the same areas, one of the reasons why the number of new mortgages receiving government support continues to increase.
A test will come at the end of 2013, when the FHA loan limit of US $ 729,750 will expire. After that, the FHA will have capped at US $ 625,500, in line with Fannie and Freddie.
Andrew Leventis, the chief economist of the Federal Housing Finance Agency, the regulator for Fannie Mae and Freddie Mac, said his agency did not do a thorough analysis of what would happen to the market if the loan ceiling was reduced. While interest rates on fully private loans are not much higher than those supported by Fannie and Freddie, it is harder that how to qualify for FHA loan in Texas because of stricter underwriting standards, he noted. .
Last month how to qualify for FHA loan in Texas, quality assurance engineer Ann Rahn and her husband purchased a $ 820,000 three-bedroom home in a posh corner of San Jose, also in Santa Clara County.
“Our broker said he was going to be a Fannie or Freddie loan,” Rahn said. And, indeed, the bulk of their funding took the form of a government-guaranteed loan for US $ 625,000.
Rahn said getting government help was not ideal, but she was happy that Washington could help. “Otherwise, we would always rent,” she said.