It's your move Fannie, Freddie

by Paydayloans24709 Jan 2015
The Federal Housing Administration's (FHA) plan to lower annual mortgage insurance premiums could steer business away from the Fannie Mae and Freddie Mac, according to lawmakers.

"The president's decision reflects a race to the bottom between the FHA and the GSEs in which the private sector is crowded out and taxpayers are left holding the bag," said Rep. Ed Royce, R-Calif. "The financial crisis is proof positive that an increased government presence in housing distorts the market and promotes the very boom-and-bust cycle we are trying to avoid."

"The lowering of the insurance premium on FHA loans will make FHA loans more competitive relative to the Fannie and Freddie guaranteed loans," Sens. Bob Corker, R-Tenn, and David Vitter, R-La., said in a statement Thursday. "Instead of better protecting taxpayers from incurring losses…during a future economic downturn, the government is involved in a race to the bottom by reducing taxpayer protections to expand government credit guarantees,"

The banking committee members argued that the FHA's move combined with the low-down-payment products from Fannie and Freddie will lead to the underpricing of government-backed loans.

The FHA mortgage insurance premium cut  U.S. President Barack Obama announced Wednesday drops the FHA mortgage insurance premium from 1.35% to 0.85%. Administration officials said the move would help 800,000 homeowners who refinance their mortgages to save money, and draw 250,000 new homeowners into the market over the next three years.

The recent move by Federal Housing Finance Agency Director Mel Watt to allow Fannie and Freddie to finance mortgages again with just 3% down may not be as enticing because of the higher private mortgage insurance premiums charged on the loans. Watt, too, is considering making adjustments to the guarantee fees and loan level price adjustments that Fannie and Freddie charge.

The National Association of Hispanic Real Estate Professionals (NAHREP) said while they support the President's plan to cut mortgage insurance premiums, they are also urging Fannie and Freddie to follow suit. "NAHREP feels that lowering borrower costs by reducing the current excessive guarantee fees and loan level pricing adjustments at Fannie Mae and Freddie Mac are equally important in supporting the Obama administration’s stated goal of ‘preserving broad and affordable access for all creditworthy families," the association said in a statement.

During the first quarter of 2014, the GSE's market share was around 50% of all new mortgages. “Hispanics represent the largest segment of new homebuyers in the market today,” said NAHREP President Jason Madiedo. “The reduction in MIP premiums could facilitate the dream of homeownership for hundreds of thousands of additional qualified buyers.” 

Following Obama's speech yesterday, Fannie Mae and Freddie Mac shares dropped more than 9% each.

What do you think? Let us know in the comments below.


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