As the U.S. Congress struggles with overhauling the mortgage lending and securities system, both sides of the aisle are backing legislation that will ultimately render mortgages more expensive to maintain and more difficult to obtain[1]. Of course, in light of the past few years’ fallout when getting a mortgage was as easy as signing a name – any name, in some cases – this may not be a bad thing. Among the items backed by both Republicans and Democrats in Congress are requirements that will include larger down payments, better credit scores and additional fees to “cover risks and premiums for federal guarantees on government-backed mortgage bonds.” The legislature is trying to move quickly on this reform in order to avoid a potential double dip in the U.S. housing market, although there is still a ways to go before any type of consensus is reached[2].
As a result of more stringent requirements, homeownership is definitely going to slide, although, according to FHA commissioner David Stevens, people were getting mortgages “who clearly should not have gotten them.” Stevens predicts that in the coming months, homeownership rates will fall, but that this will ultimately be a positive thing as “it would not be productive if we had that same loan access going forward.”
Some reform scenarios suggest privatizing the entire mortgage financing system instead of originating mortgages with banks and then having them either be guaranteed by the FHA or purchased by government-controlled GSEs Fannie Mae and Freddie Mac. However, this aspect of the legislation is still in much dispute, and there are many different opinions on how this reform facet should be handled. No matter what, though, say analysts, “in the future borrowers, rather than the government, are likely to bear more of the lending risk.”
Do you think that this is a good way to reform the system? Will it keep our housing market “safe” in the future?
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[1] http://www.bloomberg.com/news/2011-01-31/higher-costs-lower-home-ownership-rates-expected-after-housing-overhaul.html
[2] http://savannahnow.com/exchange/2011-01-20/latest-push-mortgage-reform-applauded
