Throughout the proverbs of King Solomon, the keys to living a Godly life are described in terms of a house, with its pillars and foundation of wisdom, prudence and justice. Today, legislative efforts to reform US housing policy are taking aim at two of the pillars of American home lending: Fannie Mae and Freddie Mac.
In spite of a troubled past linked to the subprme mortgage meltdown of a few years ago, these two institutions seem like a permanent part of the US housing landscape. But as lawmakers float competing bills aimed at reducing – or at least eliminating – government involvement in housing policy, that could change.
In our series of intermittent posts on the progress of these bills, we’ve been looking at the implications of their proposed reforms on income property inverting, especially where mortgage lending and mortgage rates are concerned. And that’s why housing industry watchers are evaluating what the future might hold for Fannie and Freddie.
These lending services have been around for years, supplying the majority of home loans offered nationwide, But because of that, they played a major role in the subprime mortgage crisis that led to the housing collapse of 2008. Eventually both were placed into “conservatorship,” temporary holding pattern that allowed the government time to figure out what to do with them.
But that temporary conservatorship has lingered on and on, as plan after plan was floated to move some of their functions to the private sector or to create new entities out of some parts of both. The PATH Act represents the most aggressive targeting of these venerable institutions, though, with plans to phase them out entirely within 60 months, liquidate their assets and divert their functions to private companies and lending institutions.
What’s more, the loan products they’d be able to offer during that period would be subject to the provisions of the “Qualified Mortgage” Rule, which establishes tight standards for mortgage lending. The Corker Warner bill, on the other hand, would offer then a temporary exemption from the QM Rule to smooth the transition to privatization
According to a recent report by Inman News, these venerable lending agencies might be around a lot longer than the PATH Act specifies, though. Wrangling over the bill’s passage, a Democratic President likely to veto at least parts of it, and delays in shifting to privatization are all factors that could delay the timetable for phasing the two agencies out.
Some housing industry professionals see both acts – but PATH in particular – as essentially unworkable and unlikely to pass. But Fannie Mae and Freddie Mac are both still plagued by the fallout from the housing collapse and will remain in conservatorship, even as they continue to underwrite over half the home loans offered in the Us through numerous servicers nationwide.
Whether Fannie and Freddie’s fate is sealed by the PATH Act or another round of legislation, the housing market as a whole — and investors initiating and carrying the fixed rate mortgage Jason Hartman recommends for successful income property investing – will be affected by the outcome. With policy changes on the horizon, this may still be the best time to invest. (Top image: Flickr/byrdiegyrrl)
Harney, Ken. “Talk of Doing Away With Fannie and Freddie Is Just That.” Inman News. Inman.com 18 Jul 2013
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