The Obama administration has put for its new budget plan, which includes some attempts to right the sinking ship that is the U.S. housing market. The general proposals are to remove the barriers between federal assistance and those who need it, reducing mortgage restrictions and increasing fees charged by so-called “government-sponsored enterprises” (Fannie Mae and Freddie Mac) to guarantee mortgages. The Office of Management and Budget expects the fee increase to generate $28 billion over ten years while the easing of mortgage restrictions will give more people in need assistance as well as those seeking “jumbo” mortgages. For more on this continue reading the following article from The Street.
The Obama administration is working on initiatives to try to breathe some life into the moribund U.S. housing market.
Some of those plans were detailed in a proposed budget the administration released on Monday, and a report from investment bank Evercore argued policy initiatives gave some reason for optimism about a mortgage revival.
Among the initiatives is a pledge to "remove the barriers" to a government refinancing program known as Home Affordable Refinance Program, according to the Sept. 19 proposal from the Office of Management and Budget. Since HARP began in April 2009, government sponsored enterprises (GSEs) Fannie Mae(FNMA.OB)and Freddie Mac (FMCC.OB)have refinanced approximately 8.4 million loans, about 10.0% of which took advantage of HARP, according to the Evercore report.
Other expected initiatives weren’t mentioned in the budget but are nonetheless expected, Evercore’s report states. Among those is a loosening of the definition of what would constitute a qualified residential mortgage (QRM). Such mortgages would be exempt from rules requiring banks to hold at least 5% of the loans they pool together to create mortgage-backed securities (MBS).
Also widely-expected is a reduction of the upper limit for so-called conforming mortgages that qualify for guarantees from the GSEs. Banks such as Hudson City Bancorp(HCBK) and Astoria Financial(AF) that compete with the GSEs for these "jumbo" mortgages are expected to see the biggest benefit from the change.
In what may be seen as a nod to Republicans and fiscal hawks, the President’s budget also included a plan from the Treasury that will gradually increase the fees charged by the GSEs to guarantee mortgages. The below-market fees make it impossible for banks to compete, which is why Fannie and Freddie stand behind more than 95% of new MBS.
However, since it isn’t clear banks are willing to step in and fill the void, the fee increase will be phased in over 10 years. The Office of Management and Budget projects the higher fees will save the government $28 billion over 10 years. The OMB says the fee increase would amount to an extra $15 per month on a $220,000 mortgage.
This article was republished with permission from The Street.