Fannie Mae and Freddie Mac are the federal agencies that are responsible for the large majority of mortgages in the United States. The Obama Administration plans on eliminating these two programs and replacing them with new programs.
Fannie Mae and Freddie Mac subsidized 90% of the home mortgage loans in the United States in the year 2010. Under the new programs suggested by President Obama, the percentage of loans sponsored by federal agencies by the end of the decade will be only 10%.
Fannie Mae and Freddie Mac
Freddie and Fannie’s programs were established in the United States after the great depression. The intent of these programs was to assist Americans in the purchase of single family homes. For decades, Freddie and Fannie were successful in helping Americans fulfill the American dream of home ownership.
These programs attract investors by guaranteeing repayment of mortgages even if the homeowners default. The investors accept relatively lower interest rates under these programs due to the government guarantees. This enables both Freddie and Fannie to create a pool of mortgage money for lenders at low cost, which in turn allows the borrowers to obtain relatively low interest rates on their mortgages.
Tax Payers Back Freddie and Fannie
The problem with Freddie and Fannie is that the system only works because the United States Treasury backs the system. In the year 2008, the Federal Government was forced to take over these companies. Since then, the government has spent $135 billion dollars in honoring mortgage loan guarantees.
Freddie and Fannie To Be Dissolved By The Obama Administration
The Obama Administration plans on gradually phasing out Freddie and Fannie. They plan on doing this by reducing the number of loans that they guarantee and charging higher prices to the private lenders. Higher down payments will also be required for the perspective homeowners to obtain mortgages.
Thirty Year Fixed Rate Mortgage
The thirty year fixed rate mortgage is the most common mortgage given in the United States. This mortgage would never have existed without government support under the Freddie and Fannie programs.
Three Options to Replace Freddie and Fannie
The first option would be the complete elimination of all government guarantees for mortgages. The second option would offer some guarantees to investors, but only at times when the economy is not doing well or the real estate market is in financial distress.
The third option would involve the government guaranteeing various types of mortgages, but only if lenders first purchased a guarantee from a private insurer. Although this would limit the government’s exposure, it would also impact interest rates. The third option is a similar option to what exists today under Freddie and Fannie.
Affordable Housing
Conservatives blame Freddie and Fannie for causing the mortgage crisis in the United States. Housing advocates say the Obama Administration is making a mistake in trying to kill Freddie and Fannie. They point to the fact that these programs have been successful for decades in the past.
John Taylor, the president of the National Community Reinvestment Coalition, stated that “instead of cleaning up where Freddie and Fannie went wrong we’re eradicating a proven system that worked very well for most of it’s history.”
The ownership of a single family home is truly the American dream. I strongly believe the government should assist Americans in fulfilling this dream. However, I also believe the dream should be smaller and less expensive!
The Law Offices of Schlissel DeCorpo provides foreclosure defense for homeowners. We litigate all aspects of foreclosures, including defective mortgages, defective foreclosure lawsuits, predatory lending and bad faith issues. We attend foreclosure court conferences on behalf of our clients and we provide our clients with the various options available to them in foreclosure matters. We also assist our clients with mortgage modifications and deal with mortgage modification programs that fail. We file Chapter 7 and Chapter 13 bankruptcies on behalf of our clients for the purposes of stopping foreclosure actions from moving forward. In some situations, we can eliminate second mortgages by filing bankruptcies for our clients. We also assist our clients in re-establishing credit after filing for bankruptcy. Thank you for visiting my foreclosure blog. Free feel to call us should you need legal assistance at 1-800-344-6431, 516-561-6645 or 718-350-2802.
