The plan to cut back on the government’s role in housing finance included the winding down of these two programs and was officially announced on February 11, 2011.
The plan outlined the administration’s plans to target federal support for borrowers, stop unfair lending and help to get private investors to return to the mortgage market. What does this mean for those who have a Pittsburgh mortgage?
The plan would include starting the reform now, but doing it in stages over the next several years.
This would include the more dramatic changes being put on hold until 2018. Three possible resolutions are being considered for restructure once Fannie Mae and Freddie Mac are not around. A Pittsburgh mortgage, as well as others could be guaranteed by the Federal Housing Administration as well as other programs.
Advantages
Increased Private Investment: Encouraging private investors to participate in mortgage financing could reduce the government's financial burden and create more funding opportunities.
Reduced Government Risk: Gradually reducing dependence on Fannie Mae and Freddie Mac could limit the government's exposure to mortgage-related financial losses.
Fairer Lending Practices: Stronger lending standards and measures against unfair lending could help protect borrowers from risky mortgage agreements.
Financial Crisis Protection: A proposed government-backed safety mechanism could provide support to the mortgage market during a future financial crisis.
Long-Term Market Stability: A gradual transition to a more balanced public and private mortgage system could improve financial responsibility and the sustainability of housing finance.
Disadvantages
Higher Down Payments: Increasing down payment requirements could make buying a home more difficult for first-time buyers and families with limited savings.
Higher Mortgage Costs: Increased federal mortgage insurance premiums, including the proposed FHA premium increase of 0.25%, could raise borrowing costs for some homeowners.
Lower Loan Limits: Reducing the temporary conforming loan limit from $729,000 to $625,500, as proposed in the article, could restrict access to government-supported financing for some borrowers.
Stricter Lending Requirements: Private lenders may impose tougher credit and income requirements, making it harder for some borrowers to qualify for a mortgage.
Market Uncertainty: Phasing out Fannie Mae and Freddie Mac over several years could create uncertainty for borrowers, lenders, and investors during the transition.
The creation of a “backstop mechanism” that would be in place for support in the event of a crisis is one consideration. Another is providing insurance for securities that are mortgage-backed.
The Secretary of the Treasury, Tim Geithner, estimates it could take five to seven years to provide a permanent solution and phase out Fannie Mae and Freddie Mac. In addition, the way people shop for their Pittsburgh mortgage would be another change that the government would focus on starting now to begin the process.
Requiring Fannie Mae and Freddie Mac to match the loan guarantees that private banks use is one recommendation of the plan. The current amount that these two entities are allowed to purchase loans for currently is $729,000. The temporary increase, if allowed to expire according to recommendations under the plan would reset the limit to $625,500.
Additionally, the plan asks that the down payments required by loans for Freddie and Fannie be increased. Another part of the plan by the administration is asking for an increase in the federal insurance premiums on mortgages.
The raise proposal is for a hike on FHA loans by 0.25%. Freddie Mac and Fannie Mae are enterprises sponsored by the government that are behind the Pittsburgh mortgage for many as well as others across the nation. In 2008, due huge losses on bad loans, they were bailed out by the federal government.