US set to overhaul mortgage market

The White House and Congress are set
to overhaul the $12 trillion U.S. mortgage market and decide the fate of Fannie
Mae and Freddie Mac, observers say.

The effort has sparked debate along
party lines over how much the federal government should support home ownership,
The Washington Post reported.

Fannie and Freddie, which guarantee
nearly all new home mortgages, were bailed out by the federal government for
$160 billion amid the mortgage crisis.

Affordable housing advocates want the
government to offer more support for rental housing rather than pushing for
home ownership for low-income people

But Republicans have proposed
legislation to shut down Fannie and Freddie and some want no government support
for housing. They say the government push for home ownership led to banks’
approving risky loans to borrowers with poor credit.

The Obama administration must craft a
proposal by January, as part of recently passed legislation designed to
overhaul financial regulation.

“What I’m afraid of is that
people on either side of the aisle will potentially play politics and point
fingers,” said Michael Berman, incoming chairman of the Mortgage Bankers
Association. “There’s some folks that are so afraid of having any
government involvement at all because of the losses we’ve had.”

Housing companies and consumer
advocates appear to be reaching some consensus, however.

Under one scenario, Fannie and Freddie
or similar companies would be retained. They would offer a government-backed
guarantee to investors in mortgage loans. A fee charged to mortgage loan
originators would cover bad loans.

“I don’t think we could possibly
contemplate what it would be like to start without Fannie and Freddie in the
picture,” Tom Deutsch, executive director of the American Securitization
Forum, which represents many Wall Street firms, told the Post. “They can’t
disappear overnight.”


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