San Diego Homes

It’s an uncertain future for America’s Home Loan Market

The Obama Administration reported to Congress last week on their plans for housing finance reform. President Obama wants to ‘wind down’ Fannie Mae and Freddie Mac loan options. Which in clear terms means that the government will eventually stop loaning money for mortgages. The Administration will be working with the FHFA to provide stronger consumer protection, improved underwriting standards and other key measures including increased transparency for investors. It will help creditworthy, under served  home buyers that are looking to purchase their first home. The plan will encourage private sector mortgages.

The report to Congress sited several factors as the cause for the recent housing crisis.

  • Poor consumer protection. This led to predatory lending and risky, low quality lending products.
  • An outdated and inadequate regulatory commission. The mortgage system wasn’t kept in check.
  • A lack of transparency, standardization and accountability. Throughout the whole industry, underwriting standards deteriorated until the loans weren’t worth the paper on which they were written.
  • Inadequate capital. The government didn’t require banks to hold enough capital on the books to cover their losses.
  • Unable to assist homeowners. Once housing prices fell, the industry that serviced the mortgages were ill equipped to deal with the need of the homeowners.

The Report went on to say that Freddie Mae’s pursuit of  higher profits and the fact that they were required to hold far less capital than traditional mortgagors, led to it’s failure.

To ensure a healthy and thriving mortgage market, the reports suggests…

  • Returning the FHA to it’s traditional role as a lender.
  • Ensure support for small and medium sized lending institutions.
  • Improve coordination between existing government home finance programs.
  • Curb abusive practices by lenders and lenders agents.
  • Maintain a clear set of lending rules and standards that will allow all lenders to participate on the same terms.
  • Require income verification and strengthen underwriting standards.
  • Establish national standards for mortgage loan servicing.
  • Promote the growth of the affordable rental housing market.

To read the report for yourself please click the link below.

Reforming America’s Housing Finance Market (A Report to Congress)

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