The Future Of Fannie Mae And Freddie Mac

Mortgage giants Fannie Mae and Freddie Mac may have essentially failed, but the two companies continue to back more than half of out nation's mortgages. That has some economists very worried. The two government-controlled entities backed 62 percent of new home loans this year, compared to 27 percent of new loans for 2006, back when the private lending market was still thriving. If you throw Ginnie Mae loans in to the equation, a staggering 9 out of 10 US mortgages are backed by the government.

What does all this mean to the average citizen? Since the government assumed control of Fannie Mae and Freddie Mac in 2008, it essentially owns them. If the economy worsens again and mortgage defaults rise, the American taxpayer will be forced to foot the bill. At a time when government debt is in the trillions and rising, this is a very disconcerting possibility. Critics warn that it is not beneficial to the housing market to have mortgages backed by the government in such large numbers and that we need to find a way to bring the private lending business back in.

The government pulling back too quickly, however, could lead to another crash in the housing sector, just when it's showing signs of a recovery. President Obama's administration has scheduled a conference for Tuesday to discuss ideas on how to reform the US housing finance system, with the future of Fannie and Freddie a focal point. Legislators, community activists, and academics will be involved in the discussions will attempt to find a balance between the reduction of the government's involvement and the prevention of another crash.

Among the scenarios suggested so far are one where the two agencies would be disbanded completely and replaced with new entities. Another suggests that the two companies be split into two distinct divisions – a public securitization division and a private mortgage investment division. In the latter option, the private division would become private over time, as the government slowly pulls its support.

Housing experts almost unanimously agree that a fundamental change in how Fannie and Freddie operate is needed and that the government must eventually reduce its role in the mortgage industry, but they also agree that sudden massive change could severely hinder a recovery. Most suggest that the proper course of action is slow gradual changes aimed at increasing private involvement in the mortgage industry over the next five to ten years.
For homeowners, this means that any changes in Fannie Mae and Freddie Mac that might affect their loans directly would come about very slowly.

By: G Mills

Article Directory: http://www.articledashboard.com

G Mills specializes in Asheville NC real estate and Waynesville home sales.