The House financial services subcommittee held the first hearing on what to do with Fannie Mae and Freddie Mac. The ultimate answers are likely to determine the types of loans and interest rates that home buyers will have in the future.
There were a few ideas that the Capitol Hill hearings came up with. One was a “utility” concept, where Fannie and Freddie might be merged into a single, privately-owned, federally-regulated superstore for mortgage money. This would be similar along the lines of the water, power and sewage utilities we see all over the country, but there'd just be one mega-utility to fund mortgages. The utility concept was first proposed last year by former Treasury Secretary Hank Paulson. The Obama Administration has not spoken out publicly on it yet.
Another idea discussed at the hearing was to broaden the mortgage menus of whatever agency or agencies replace Fannie and Freddie to include types of mortgages they currently can't touch -- especially jumbo home loans and commercial real estate mortgages.
Jumbo and commercial real estate loans have suffered in the credit crunch and need more support. Commercial and investment property owners have found themselves unable to refinance because there is neither a private nor public secondary market for their loans at the moment.
The Mortgage Bankers Association (MBA) came to the hearing with a white paper listing various alternative futures for Fannie and Freddie, including turning them into a government-owned version of the FHA and Ginnie Mae, but targeted on conventional mortgages.
Without endorsing any particular alternative, the MBA also suggested a private “cooperative” model, in which banks and other mortgage industries would pool their assets and provide secondary market services in addition to mortgage originations.
Under this scenario, the federal government would provide back-up insurance against “catastrophic losses” that exceed the private cooperative's capital and pledged assets.
In any case, Congress will hold more exploratory hearings this year and when the market is healthier and the recession is over the Obama administration might begin drafting its preferred solution, which almost certainly will not involve total privatization.
Realty Times
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