Almost all mortgages issued in America are funded by Fannie Mae and Freddie Mac. Because of mismanagement and the need for the US Government to bail them out in 2008, Freddie and Fannie owe more than $180 billion. We the taxpayers are on the hook. Two choices from the US Congress may be coming into play to replace these government-sponsored enterprises with private enterprise.
If a bill introduced this spring in congress becomes law, it would transfer lending risk over to private enterprise. The new federal agency that would be created, Federal Mortgage Insurance Corporation, or FMIC, would regulate the mortgage industry. A fee would be assessed on each mortgage issued to provide funding.
A second bill already in committee would terminate Fannie Mae and Freddie Mac without a replacement, turning over responsibility to the Federal Housing Agency, FHA. While bipartisan support has not emerged, both bills seem to be gathering steam.
Currently both Freddie and Fannie are profitable but not enough to repay the bailout from taxpayers, that nasty $180 billion problem. If Fannie and Freddie go away, what would be the actual consequences? Once thing for sure, mortgage rates would increase simply based on the fee structure needed to maintain the overview from FMIC. Plus moving from a government-based mortgage supply to private funding is simple enough to understand that more profit will be required. Mortgage rates will increase. The other unintended consequence is even being able to qualify for a loan; will the barrier be too high for most applicants?
You hear it all the time: less government. But the fact remains, when it comes to something as massive as the mortgage funding business, it is clear congress and the US Government need to keep a very strong hand in it. Or we will have an even bigger mess on our hands; Wall Street will be raising its nose and sniffing big profits in the air. Privatizing the American Mortgage system is a big mistake.