Friday, February 11, 2011
Big Changes Proposed for Mortgages
The Obama administration laid out its vision for the future of the U.S. mortgage market on Friday. The housing market is $10.6 trillion market and over the last two and half years the government took a greater role in this sector when it took over Fannie Mae and Freddie Mac to keep the firms solvent during the housing crash. Fannie and Freddie buy home loans that conform to certain standards and convert them into assets that can be sold to investors. They stand behind the vast majority of mortgages in the United States. According to the Wall Street Journal, taxpayers are on the hook for $134 billion, and the bailout is likely to be the most expensive legacy from the 2008 financial crisis.
Instead of a mammoth quasi-government entity that buys mortgages from banks and securitises and guarantees them, the government would have a much smaller role in each of three options presented in the new plan.
According to the Financial Times, in the first option, the government’s role would be limited to the Federal Housing Administration, which currently provides access to mortgage credit for poorer borrowers. In the second, the government would also maintain a guarantee over mortgages but priced to the banks at a higher level so that it would only be competitive in the absence of a functioning private market. In the third, the government would be a last-ditch insurer of the market, paying out to holders of mortgage securities only in a “catastrophic” downturn where private insurers were wiped out.
The administration's proposals envision a scaled-back role for the government. The steps are likely to mean higher borrowing costs and more limited access to home loans for consumers. This may signal an end to the decades-old policy of pushing for ever greater home ownership.
Sources: Wall Street Journal, Financial Times, CNNMoney.com
Athletes Who Succeed in Business
Check out this Businessweek
feature and learn about the good and bad business moves made by former athletes from Scottie Pippen to Magic Johnson to Latrell Sprewell.