There May be Significant Changes in Lending Practices
February 16, 2011
The Administration has proposed winding down Fannie and Freddie over the next five to seven years. They would accomplish this by raising guarantee price and down payment requirements while lowering the size of the mortgages they could securitize and guarantee. The hope would be to lure private capital back into the mortgage market. Currently some 92% of all new mortgages are underwritten or guaranteed by the government. (Surprise, we thought banks and mortgage companies and investors were funding our loans).
According to an editorial in the Wall Street Journal, "The $5 trillion question, however, is what would replace Fan and Fred?"
When lending for real estate purchase first began, Savings and Loan Institutions were a primary source of loans. Folks deposit money into savings accounts. The money was lent out to solid borrowers who were charged an interest rate that created additional funds for additional loans. Lenders held onto these loans and made profits from the spread between what they paid savers and what they charged borrowers. Because there were times when these lenders were short of funds for lending because they had used up their deposited funds, the government as part of FDR's New Deal created Fannie Mae to purchase these loans from the lending institutions. That gave the lenders new funds to lend.
There will be much conversation about the elimination of Fannie and Freddie. The National Association has already entered the fray. The fear, which is real, is that people will be prohibited from purchasing a home due to restrictive lending practices or lack of available money.
If any of you have a suggestion, post a comment.
The Administration has proposed winding down Fannie and Freddie over the next five to seven years. They would accomplish this by raising guarantee price and down payment requirements while lowering the size of the mortgages they could securitize and guarantee. The hope would be to lure private capital back into the mortgage market. Currently some 92% of all new mortgages are underwritten or guaranteed by the government. (Surprise, we thought banks and mortgage companies and investors were funding our loans).
According to an editorial in the Wall Street Journal, "The $5 trillion question, however, is what would replace Fan and Fred?"
When lending for real estate purchase first began, Savings and Loan Institutions were a primary source of loans. Folks deposit money into savings accounts. The money was lent out to solid borrowers who were charged an interest rate that created additional funds for additional loans. Lenders held onto these loans and made profits from the spread between what they paid savers and what they charged borrowers. Because there were times when these lenders were short of funds for lending because they had used up their deposited funds, the government as part of FDR's New Deal created Fannie Mae to purchase these loans from the lending institutions. That gave the lenders new funds to lend.
There will be much conversation about the elimination of Fannie and Freddie. The National Association has already entered the fray. The fear, which is real, is that people will be prohibited from purchasing a home due to restrictive lending practices or lack of available money.
If any of you have a suggestion, post a comment.
posted by shirley harry at 9:00 AM
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