“A reduced government presence in the mortgage market will raise the cost of homeownership and make mortgages less available,” CAR President Beth L. Peerce said. “Moreover, Congress needs to understand that during economic downturns, the housing market needs government involvement to ensure capital stability. History has shown the private market is incapable and unwilling to step in during the hardest of times and meet the demands of the nation’s home buyers.”
CAR, along with the National Association of Realtors, believes that Fannie Mae and Freddie Mac government-sponsored enterprises (GSEs) should be converted into government-chartered, non-profit corporations. Such an entity would ensure government’s role in a stable real estate finance system, while eliminating the conflict created by the GSE’s current charter allowing for a private profit and public loss structure. With a clear explicit guarantee by the government, these entities would continue to be able to offer low interest rate loans onto home buyers and assure investor confidence.
The White House’s proposal to allow the maximum loan limit to drop back to $625,500 in high cost areas also would hamper California’s housing recovery
The conforming loan limit determines the maximum size of a mortgage that Fannie Mae and Freddie Mac can buy or “guarantee.” Non-conforming or “jumbo loans” typically carry higher mortgage interest rates than conforming loans, increasing monthly payments and hampering the ability of families in California to purchase homes by making them less affordable.
GSE key points:
- The national loan limit for Fannie Mae and Freddie Mac is $417,000. Only in areas where the median home price is above $417,000 does the higher loan limit apply, which allows all homebuyers to have equal and fair access to affordable capital.
- An efficient and adequately regulated secondary market is essential to providing affordable mortgages to consumers. The secondary market, where mortgages are securitized and/or combined into bonds, is an important and reliable source of capital for lenders, and therefore, for consumers.
- Without a secondary market, mortgage interest rates would be unnecessarily higher and unaffordable for many Americans. In addition, an inadequate secondary market would impede both recovery in housing and the overall economic recovery.
- Government-sponsored entities have a separate legal identity from the federal government but serve a public purpose. Unlike a federal agency, the entities will have considerable political independence and be self-sustaining, given the appropriate structure.
- The mission of the GSEs would be to ensure a strong, efficient financing environment for homeownership and rental housing, including access to mortgage financing for segments of the population that have the demonstrated ability to sustain homeownership. Middle class consumers need a steady flow of mortgage funding that only government backing can provide.
- The entities should guarantee or insure a wide range of safe, reliable mortgage products such as 30- and 15-year fixed-rate loans, traditional ARMs, and other products that have stood the test of time and for which American homeowners have demonstrated a strong ability to repay.
- There must be strong oversight of the entities (for example, by the Federal Housing Finance Agency – FHFA, or a successor agency) that includes the providing of timely reports to allow for continual evaluation of the entities’ performance.
