How might things change for mortgage lenders & borrowers?
Is a new home financing system ahead? In the text of a speech delivered August 6, President Obama said: "I believe that while our housing system must have a limited government role, private lending should be the backbone of the housing market."This statement came as part of call for winding down Fannie Mae and Freddie Mac and revamping home financing in America.1,3
How might the playing field change? Right now, Fannie and Freddie backstop almost 90% of U.S. home loans. They are also $187.5 billion in debt to taxpayers, a result of the 2008 bailout that rescued them from the edge of insolvency. Two measures are already underway in Congress to replace both government-sponsored enterprises within the next few years.2,3
If a bipartisan bill introduced this spring by Sen. Bob Corker (R-TN) and Mark Warner (D-VA) becomes law, it would transfer lending risk over to private capital. The proposed legislation would require private lenders to assume the first 10% of losses on individual home loans, and stay sufficiently capitalized to counter major losses. A new federal agency - the Federal Mortgage Insurance Corporation, or FMIC - would regulate the mortgage industry and act to insure banks in a crisis. Just how would it be funded? A fee would be assessed on each mortgage issued. In the vision of the bill, the FMIC would pay for itself thanks to those fees and have enough left over to fund the construction of affordable multifamily properties and provide assistance to low-income homebuyers.2,3,4
Another bill written by House Financial Services Committee chairman Rep. Jeb Hensarling (R-TX) would terminate Fannie Mae and Freddie Mac without a replacement - the FHA would be the last remaining U.S. mortgage backstop. As Bloomberg notes, no House Democrats have emerged to support that bill - and as the Baltimore Sun notes, the bill drafted by Sens. Corker and Warner stands little chance of getting past the House. So it seems the playing field might be reshaped only after considerable compromise, and not in the short term.2,3
Aren't Freddie & Fannie turning a profit now? Yes, but none of it is paying for their bailout. The GSEs have now returned more than $131 billion in dividends to the Treasury, but that money represents ROI for Uncle Sam. It doesn't whittle away the $187.5 billion owed to taxpayers.3,5
What would happen to mortgage rates without Fannie & Freddie? They would almost certainly rise. Private lenders have little motivation to finance home loans the way the rules are now, and it would take significant incentives to bring them back into the market. As Moody's Analytics chief economist Mark Zandi told CNBC, "[That] will mean higher mortgage rates. The question is how much higher." In particular, first-time or lower-income homebuyers might find it tougher to qualify for a loan. (In one key respect, it has grown tougher: the average credit score for a Fannie and Freddie loan in 2012 was 756, compared to 720 in 2006.)4,6
Would the 30-year FRM become an endangered species? That is another concern. Without Fannie and Freddie around to guarantee home loans against defaults, the worry is that the standard American mortgage would become scarce. In many other nations, 30-year home loans are unconventional. The fear is that banks would address the default risks of 30-year mortgages by asking for larger down payments and demanding higher interest rates.2,4
True change will likely take a few years. It is hard to imagine Fannie and Freddie liquidating their portfolios and going out of business soon. Reform will probably proceed gradually - very gradually. President Obama's call to unwind both GSEs and the recent proposals to replace them certainly amount to interesting food for thought.2
Citations.
1 - cbsnews.com/8301-250_162-57597284/wind-down-fannie-mae-freddie-mac-obama-says/ [8/6/13]
2 - baltimoresun.com/news/opinion/editorial/bs-ed-obama-housing-reform-20130808,0,5392371.story [8/8/13]
3 - sfgate.com/business/bloomberg/article/Obama-Says-Housing-Market-Still-Needs-Limited-4710318.php [8/6/13]
4 - csmonitor.com/Business/new-economy/2013/0808/If-Obama-eliminates-Fannie-Mae-Freddie-Mac-will-mortgage-rates-go-up [8/8/13]
5 - reuters.com/article/2013/08/08/us-usa-fanniemae-results-idUSBRE9770JL20130808 [8/8/13]
6 - tinyurl.com/mg2xxs4 [8/7/13]
DELICIOUS AND HEALTHY BREAKFAST RECIPE
This recipe is from the AARP Diet book and serves 2 people.
Black Bean Omelet
•2 whole eggs plus the egg white from a 3rd egg, whisk them up
•½ cup diced onions or shallots, a little extra is OK.
•1 medium clove of garlic, diced or pressed. I am starting to think diced might be better so it doesn't cook to fast.
•1 can of black beans, rinsed and drained. Put them in a microwavable cup or bowl and heat them up for 60 to 80 seconds so they are pretty warm. Otherwise they will make your omelet cold.
•¼ cup cheese, (it is supposed to be low fat cheese). We use Swiss, which is pretty low fat on its own. I also like it to have a little more cheese than the ¼ cup.
•1 whole tomato, diced
•1 Tbsp of diced cilantro
•1 Tbsp of olive oil
•Salt and pepper to taste
Sauté the onions for about a minute or two, until they start to turn golden or start to brown then add the garlic and go for about 30 seconds to 1 minute more. I like to pull those two ingredients out of the pan so they don't get too done.
Pour in the eggs, let them start to set and the spread the tomatoes, onions and garlic, beans and cheese, on one side of the omelet. Salt and pepper the ingredients then fold the omelet over and let it heat through for about 30 seconds. Divide in half and serve with the cilantro sprinkled on top.
To spice it up, top it with some good salsa or hot sauce.
ENJOY!
Sincerely,
William T. Morrissey and Tammy Prouty
Sound Financial Planning Inc.
wtmorrissey@soundfinancialplanning.net
Primary Office
425 Commercial Street, Suite 203
Mount Vernon, WA 98273
Phone: (360) 336-6527
Secondary Office
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Friday Harbor, WA 98250
(360) 378-3022
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