Mortgage rules eased to help housing market, but don’t tell Congress

I have written  Fannie Mae and Freddie Mac that the best solution for the housing market would be to make sure that Fannie Mae (FNM) and Freddie Mac(FRE) returned to their core mission of providing liquidity to the housing market. They got away from that mission during the boom and Congress, in typical knee jerk fashion, decided to shut them down – with no plan to replace them, other than a vague hope that the “private sector” would step in.

Well, that hasn’t happened, and this week Mel Watt, the recently appointed head of the Federal Housing Finance Agency (FHFA), which oversees FNM/FRE, reversed course on some of the new mortgage rules amid concern that they would hinder the housing market recovery. Mr. Watt went further and said:” I don’t think it is FHFA’s role to contract the footprint of Fannie and Freddie.” Winding down the companies without clear proof that private investors are willing to step in “would be irresponsible.”

Here’a Wall Street Journal article: US Backs Off Tight Mortgage Rules

That was Tuesday. On Thursday, the Senate Banking Committee approved a Bill, the Housing Finance Reform and Taxpayer Protection Act (have you noticed how when Congress spends our money they call it Protection?), which will wind down Fannie and Freddie and “allow for a diverse set of private entities to step in and replace most of the functions of FNM/FRE.”

One of the arguments put forward was that if FNM/FRE were to incur a loss in any quarter “we would have to make a draw on the Treasury Department because we have no capital cushion,” according to FNM’s CEO. This is true. Because the Treasury has seized nearly all the capital of FNM/FRE and used it to reduce the Federal Budget Deficit.

According to press reports, the new Bill has no chance of going to a vote in the Senate because it lacks sufficient support among Democrats, who believe it does not do enough to help fund affordable housing.

It very much looks, therefore, as though we will see FNM/FRE continue for the forseeable future and that mortgages will be easier to get in the near future. With mortgage rates at 6 month lows, this bodes well for the housing market in the near term.

If you – or somebody you know – are considering buying or selling a home and have questions about the market and/or current home prices, feel free to contact me on 617.834.8205 or [email protected].
Andrew Oliver is a Realtor with Harborside Sotheby’s International Realty
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