30-Year Fixed-Rate Mortgages: Will They Die With Fannie and Freddie?
Posted On April 3, 2021
The housing bubble crisis can be seen across the country. Michigan foreclosures, Wisconsin short sales, and Indiana bank-owned homes. There seems to be no state free from the hassle of foreclosures. But is the answer to the problem simply shutting down the mortgage giants? Fannie Mae and Freddie Mac? That appears to be the federal government’s plan. It’s a goal that House Republicans share with President Obama.
How does this affect me?
Closing Fannie and Freddie would likely lead to the end of something that is part of the American way of life: the 30-year fixed-rate mortgage. Housing market experts from both political parties agree that interest rates would likely rise for most borrowers. Also, standard practices like locking in an interest rate could become something homebuyers pay for out of pocket.
Why is the government doing this?
Are the Feds Trying to Ruin the American Dream of Homeownership? The government is unlikely to simply want to cause problems for first-time home buyers, other borrowers, and the real estate industry. But your actions will likely do just that.
Mark Jones, president of AmeriFirst Home Mortgage recently gave me an insight into the reasons and consequences of this latest mortgage industry move.
Most of the things the government is trying to do with the home finance issue is based on the premise that the entire industry was broken and that is what caused the collapse. Now there is a huge push from politicians to overcompensate with regulation and change to show their constituents how tough they are.
The facts are, the industry functioned smoothly and without the need for federal government intervention until traditional credit standards that had been in use for decades were abandoned. Easy credit standards fueled by Wall Street’s insatiable appetite for high yields, and Fannie Mae / Freddie Mac’s tacit endorsement of these relaxed new standards created a bubble that is now an epic binge from which we are still suffering a long hangover.
However, the products that created the nightmare are now gone and our industry is underwriting loans as we traditionally did. The closed book of business for the last two and a half years is performing surprisingly well and all the players who made a living in the Sub-prime and Alt A world are gone.
Instead of overregulating our industry and reducing the government’s commitment to housing by closing Fannie Mae / Freddie Mac and reducing the role of HUD, I think the government should focus on products with lax credit standards and unfriendly terms. consumer. In other words, let’s fix what caused the problem and don’t destroy the entire industry and homeownership along with it.
If the government needs a model for what works, it need look no further than the Department of Housing and Urban Development (HUD) and specifically Ginnie Mae (GNMA – National Government Mortgage Association).
In simple terms, Ginnie Mae does with FHA, VA, and USDA loans what Fannie Mae and Freddie Mac do with conventional loans by providing a secondary market for “government loans.” Ginnie Mae for the past two fiscal years has made a PROFIT of more than ½ billion each year.
Imagine, a government agency that actually sends surplus funds (which is what they call it in their annual report to Congress … I guess the P word is bad news in government) to the Treasury. The reason this has worked for Ginne Mae while Fannie / Freddie are losing cash is because the credit standards of the loans that Ginnie Mae provides liquidity for NEVER CHANGED.
The industry never broke; he just went crazy for several years.
Your take away food
If the government has its way, the standard of borrowing from Americans to which they are accustomed could be taking its last gasp for years to come. But rather than simply killing Fannie / Freddie, the feds should consider other symptoms of the housing bubble catastrophe.