Last week, the Obama Administration released its report that outlines its preferences for reforming America’s housing finance markets. The proposal seeks to eliminate Fannie Mae and Freddie Mac and have their functions replaced by a combination of private lenders and reassignment of other portions of multi-family housing finance to other agencies. The report provides three approaches to transforming housing finance but fails to endorse any one of the approaches specifically.
Some of the reform proposals include:
- Reduce conforming loan limits set
- Reducing the portfolio size of mortgages held by government housing finance agencies
- Increasing down payments requirement with a minimum of 10% over a phased in period
- Setting targets to reduce the role played by the Federal Housing Administration in new mortgage production
- Raising insurance premiums for government guarantees on mortgage products
“This is a plan for fundamental reform – to wind down the GSEs, strengthen consumer protection, and preserve access to affordable housing for people who need it,” said Treasury Secretary Tim Geithner. “We are going to start the process of reform now, but we are going to do it responsibly and carefully so that we support the recovery and the process of repair of the housing market.”
The plan calls for additional support for rental housing through measures that could include expanding the FHA’s capacity to support lending to the multifamily market, with reforms like risk sharing with private lenders and dedicated programs for hard to reach property segments like smaller properties.
“This report provides a strong plan to fix the fundamental flaws in the mortgage market and better target the government’s support for affordable homeownership and rental housing,” said Housing and Urban Development Secretary Shaun Donovan. “We must continue to take the necessary steps to ensure that Americans have access to quality housing they can afford. This involves rebalancing our housing priorities to support a range of affordable options, from promoting much-needed financing for quality, affordable rental homes to ensuring the availability of safe, and sustainable mortgage products for current and future homeowners.”