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More Expensive Government Mortgages Ahead


Government-backed mortgages, including those guaranteed by Fannie Mae, Freddie Mac, and the FHA, are expected to get more expensive in a bid to restore the languishing private market.

The details were included in a Treasury/HUD report to Congress, titled, “Reforming America’s Housing Finance Market.”

In a bid to wind down government mortgage financiers Fannie Mae and Freddie Mac, the Treasury has suggested that guarantee fees be raised, putting the price of the guarantee on a level playing field with similar private market mortgages.

10 Percent Down on Fannie and Freddie Loans

Additionally, the Treasury wants the down payment requirement on Fannie and Freddie loans to eventually rise to 10 percent.

And has recommended that the max conforming-jumbo loan limit, currently set at $729,750, expire as scheduled on October 1, 2011, reverting back to the loan limits established under the Housing and Economic Recovery Act of 2008 (HERA), which calls for a max loan amount of $625,500.

“As a result of these reforms, larger loans for more expensive homes will once again be funded only through the private market,” the report said.

The Treasury has also recommended that Fannie and Freddie’s investment portfolios be winded down at an annual pace of no less than 10 percent.

Returning FHA to Traditional Role

To prevent a flood of new business at the FHA, the Treasury wants the agency to return to its traditional role of providing affordable mortgages to low and moderate income homeowners.

To accomplish this, they recommend decreasing the max FHA loan amount to HERA guidelines and also increasing annual mortgage insurance premiums by 25 basis points.

“This will continue the ongoing effort to strengthen the capital reserve account of FHA, and put it in a better position to gradually shrink its market share.”

Finally, the report calls for full implementation of the Dodd-Frank Act’s consumer protection provisions, which would eliminate high-cost loans and incentives (yield spread premium) for mortgage brokers and other loan originators for steering consumers into such loans, while bolstering underwriting.

Currently, Fannie Mae, Freddie Mac, the FHA, and Ginnie Mae insure or guarantee more than nine out of every ten new mortgages, so it’s very clear change is necessary.

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