Plan to Reform Mortgage Market Could Affect FHA Negatively

Okay I get it! Fannie Mae & Freddie Mac must cease “business as usual” because of the heavy criticism (some warranted) over the last five to six years as well as their share of blame for the sub-prime meltdown which fueled the mortgage crises and eventual recession; But it seems a little drastic to totally dismantle the two GSEs, both of which deserve a great deal of credit for their part in the robust real estate and growth in the mortgage market during the decade from the mid-nineties to mid-two thousands.
Getting rid of Fannie & Freddie would create much more pressure on the FHA (Federal Housing Administration that insures mortgages), which would be the only mortgage agency that would remain, (except the VA, which is restricted to veterans and their spouses) to deal with the nation’s home financing needs. That, my friends, could create another problem altogether. In the aftermath of a devastating subprime meltdown and crippling recession FHA-insured mortgages increased more than 20% from second quarter 2009 to the same quarter in 2010. Just think of how much more the agency would have to take on in the absence of the two GSEs.

If the private sector doesn’t pick up the slack from winding down the GSEs, then FHA would be the only viable source to meet that increased demand, so the planned reform has to be implemented with extreme care. Read more in this BINYAMIN APPELBAUM NY Times Article; and for a different perspective take a look at this Felix Salmon Seeking Alpha Article. Fannie Mae (1938) & Freddie Mac (1970) have been a huge part of the mortgage industry for a long time so any plan for “winding” them down is a big deal to this author.

Happy New Year! And Wishing You All the Best for Success in 2011.

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If the government can’t run business, how come businesses always run to the government for a bailout when it runs into trouble? FHA-insured mortgages, government run for 75 years. Lest we forget?