GOP Wants to Reduce Freddie and Fannie's Role
Traditionally aligned, the GOP and Housing Industry brass are far from seeing eye-to-eye on the issue of government involvement in the housing market.
Following the housing market collapse Republicans have been pointing to Fannie Mae and Freddie Mac as culprits, while numbers show that their sub prime
mortgage portfolio outperformed private loan originators by a substantial margin.
On the other hand, industry insiders feel that full privatization would shrink the market and make mortgages even more expensive.
Fannie Mae and Freddie Mac are responsible for securitizing home mortgage loans into mortgage-backed securities and selling them off as shares to investors. This process removes liability from the banks and allows them to, A) offer more mortgage loans than they could otherwise, and B) offer 30-year mortgages without fear of backlash from defaulting homeowners.
Even though this process is what ultimately allowed banks to start offering irresponsible loans to sub-prime borrowers – because they aren’t held financially liable if the homeowners defaults – without securities banks would not have the money in their coffers to offer mortgages to the majority of Americans.
On the other side of the process investors are protected from defaulting homeowners by a government guarantee. Without the government guarantee investors would clamor for more stringent loan processes and higher interest rates. Government involvement in the process is what keeps the system balanced.
Furthermore, without government involvement loan originators would be less willing to offer home loan mortgages during down economic times.
Many Republicans, including
Texas Representative Jeb Hensarling, vow to veto any attempts to rewrite U.S. housing finance laws and push towards privatizing Fannie and Freddie in the mold of the
FDIC. The GOP fears that government involvement will result in taxpayers shouldering the financial burden of appeasing investors for defaulting homeowners.
Even though the Obama administration is due to propose options to tweak Fannie Mae and Freddie Mac by mid February, Obama has repeatedly stated that his plans to overhaul Wall St. and the nation’s financial systems is designed to protect the citizens and to make sure they never have to pay for big business meltdowns again.