The Obama Administration has announced its plans to fix the U.S. housing finance system, setting forth three separate proposals for long-term reorganization, including limiting the government's role in the mortgage market. Each of the three proposals aims to revert much of the current mortgage market and shift future mortgage lending back to the private sector. According to Treasury Secretary Timothy Geithner said that a "realistic time frame for full reform to be put into action is five to seven years."
The first proposal would substantially limit the role of the federal government by restricting the government to insuring mortgages through the Federal Housing Administration (FHA) and other programs designed to give mortgage access to low to moderate income borrowers. Advocates of this proposal say that it will limit "risk-taking" by lenders because there will no longer be a federal guarantee on those mortgages. Opponents fear that the cost of credit, direct costs and interest rates, would soar, causing mortgages to be out of the reach of most Americans.
The second proposal is similar to the first proposal in that is severely limits the role of the federal government in the mortgage market, but with a varying amount of "backstop" insurance to guarantee credit access during a prolonged housing crisis. During normal times, the government would maintain a minimum presence but during times of crisis, when private credit is scarcer, the government could play a larger role and guarantee more mortgages. The same concerns as in the first proposal remain, less access to credit and higher costs for those with access.
The third proposal again would limit mortgage lending to private lenders, outside FHA lending, but to combat the criticisms of the previous two proposals it would have provisions in place to ensure a steady stream of credit for those creditworthy homeowners. To achieve this goal, the federal government would create a guaranteeing body, much like the Federal Deposit Insurance Corporation (FDIC), that would guarantees for securities backed by mortgages that meet certain, stringent, underwriting standards. The third proposal appears to be the most popular among congress members who have spoken on the subject and it provides the lowest cost access to credit for those looking to purchase a home.
These proposals call for eliminating or radically reducing the size and influence of Fannie Mae and Freddie Mac, the two mortgage giants that many point to as a contributor to the current mortgage crisis. If you are facing a Florida Foreclosure Lawsuit, contact a Jacksonville Foreclosure Lawyer or a Florida Foreclosure Lawyer today.
To read the full Obama Administration Proposal click here.
