Follow-Up on Editorial: Do We Still Need Fannie Mae and Freddie Mac?

In my Editorial in the Fall 2010 online issue of Real Estate Valuation Magazine, I addressed the issue of whether we still need Fannie Mae and Freddie Mac. I offered some solutions as to what I felt would be a prudent solution to Fannie and Freddie's future.

This week, President Obama released the Administration’s plan for dealing with Freddie and Fannie in the context of the entire home mortgage market, entitled “Reforming America’s Housing Finance Market – A Report to Congress, February 2011."

Some of the report's major recommendations include:

  • Winding down Fannie and Freddie to a revised role in the mortgage market
  • Implementing immediate improvements to mortgage servicing and foreclosure processing by establishing national standards for both activities
  • Setting goals and targets to reduce the FHA's role in new mortgage production.
  • Reducing conforming loan limits.
  • Reducing the portfolio size of mortgages held by government housing finance agencies.
  • Increasing the required down payment to a minimum of 10% over a phase-in period.
  • Raising insurance premiums for government guarantees on mortgage products.
  • Returning FHA to its traditional role as the target lender of affordable mortgages.
  • Using the Consumer Financial Protection Bureau (CFPB) to empower consumers to make better informed decisions and avoid unfair lending practices.
  • Reforming the securitization market for home financing by increasing its regulation and monitoring.
  • Reforming servicing compensation and mortgages to eliminate the differences between first and second mortgages.
  • Revising goals and practices for how affordable housing and rentals will be supported by the government.

This is an overview of the Administration’s plan, which must be passed by Congress before it can be implemented. It affects the well being of some of the most powerful corporations and other interests in the country, represented by very powerful lobbies. In addition, the views of the political parties are very far apart on what needs to be done. This plan is just the first step in what is going to be a long and hard battle in Congress.

The entire Obama proposal (31 pages), which is summarized in this article, can be downloaded by clicking here.

My editorial containing some different ideas about what should be done is available in the Fall 2010 REV Magazine, downloadable at: http://www.revmag.com/downloads