Yesterday, the Obama Administration invited banking executives to offer advice on changing the government’s role in the mortgage market. While the executives disagreed on the level of support needed, the group overwhelmingly advocated that the government should maintain a large supporting role. Some executives are campaigning for automatic refinancing of millions of homes currently backed by mortgage lender giants Fannie Mae and Freddie Mac. The idea behind the stimulus being lower mortgage rates means lower payments and more money in consumer’s pockets for spending. That hope is that this would boost spending by $50 billion to $60 billion and lift housing prices by as much as 10 percent. They are concerned that without another stimulus in the next six months, the economy will now recover at a quick enough pace.
Skeptics are offering other solutions and accusing the Obama Administration of excluding critics of the government’s role in the mortgage system from the conference. Opposing options to the stimulus are a fundamental change to the structure of Fannie Mae and Freddie Mac where the government insures loans, or the consolidation of the companies into one government agencies. The government has already taken steps towards restructuring the problematic industry spending over $148 billion. According to Inside Mortgage Finance, the two mortgage giants backed 90 percent of mortgage loans made in the first half of the year, making this a prominent issue in the industry.
Those advocating low level of government involvement suggest guaranteeing that investors in mortgage-backed securities get paid even when borrowers default. Replacements by private sectors of Fannie Mae and Freddie Mac, could pay the government to insure loans. If the housing market were to collapse, this insurance would make certain that taxpayers are not hit with losses in the future. Another solution is to consolidate the two companies into one government agency that issues mortgage-backed securities, encouraging the greatest amount of government involvement and regulation. Supporters of this option believe it will guarantee that mortgage rates will not soar.
While there is a great dispute on the level of government involvement in the mortgage market, industry executives and experts agree that they should maintain a role in the industry. The support of both Republicans and Democrats is necessary to resolve the issue, no matter what solution is decided on.