The administration proposed 3 recommendations to the Congress. The Congress will shape the final policy.
The 3 recommendations are:
- No government role, except for existing agencies like the Federal Housing Administration.or FHA.
• A government guarantee of private mortgages triggered only when the market is in trouble.
• Government insurance for a targeted range of mortgage investments that already are guaranteed by private insurers. The government guarantee would kick in only if those private companies couldn't pay.
In September 2008, Fannie and Freddie were seized by regulators as the financial crisis intensified. The Bush administration has instructed a bailout policy for the mortgage giants to help lower the cost, increase the availability of home mortgage financing and to cover the losses on bad home loans. The rescue has cost the taxpayers nearly $150 Billion, making them the most expensive bailout in the US history. The Republicans said that it is necessary for Fannie and Freddie to be abolished because they were responsible for the collapse of the housing market.
Today, 90% of the outstanding residential mortgages are controlled by the Federal Housing Administration (FHA), the Department of Veterans Affairs, or Fannie Mae and Freddie Mac , which means that the mortgages are backed by the taxpayers. In a private system, the US taxpayers don't have to guarantee the liabilities - this will be the responsibility of the investors.
Once the proposal is put into action, the privatization would probably end the popular 30-year fixed rate mortgage that the new home buyers are currently enjoying. Or, if it's not completely abolished, it will be more expensive than the current 30-year fixed rate of 5%. Higher mortgage rates could make homes less affordable for buyers.
For more information on Mortgage Market Overhaul Proposal, please visit http://www.usatoday.com/money/economy/housing/2011-02-11-fannie-freddie-mortgage-overhaul_N.htm
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