Home Mortgages

April 19, 2011 by  
Filed under Home Mortgages

 

Home Mortgages

With the fact that $11 trillion debt from home mortgages in the U.S., it is critical to most Americans’ financial well-being and the entire economy to ensure the right kind of home mortgages. Also, in order to make home ownership broadly available and affordable, we need a secondary mortgage market that operates fairly and efficiently for all parties. In this case, it is imperative for Congress and the Obama administration to solve the Fannie Mae and Freddie Mac problem and eventually figure out the proper role of the federal government in supporting a secondary market for home mortgages.

As Fannie and Freddie unwind, three principles have been shaped for future home financing. First, all parties involved in making and investing in mortgage loans need to share a financial interest in the quality of those loans. That includes the customer taking out the loan, the financial institution or broker originating the loan, and the investor who ultimately owns the loan. Higher down payments for homeowners and more financial skin in the game for banks in the near future.

 Second, whatever role the federal government assumes in mortgage finance going forward, its role needs to be explicit, not implicit, so that consumers would benefit from worldwide liquidity for mortgage products. To protect taxpayers, adequate levels of private capital should be required to take the risk of loss. In this way, the federal government would only act as a “catastrophe risk” backstop much like the role the FDIC plays in protecting bank deposits up to a certain limit. Banks would pay a fee, just as they do for FDIC insurance, and the homeowner’s mortgage would be guaranteed up to a certain amount by the federal agency providing the insurance.

 And third, as we move forward in a post-GSE marketplace, we need to make sure we have uniform underwriting and servicing standards for mortgage loans, and more common products for what are called conforming mortgage loans. An efficient secondary market depends on relatively standard products and processes. Otherwise every batch of loans has to be examined in detail for its unique qualities, an examination that results in higher transaction costs and ultimately less attractive investments. The lack of standardization drains the lifeblood out of secondary market operations.

Mortgage financing is a big deal for millions of Americans and for our economy overall. All sides should be looking for solutions that will help all Americans. The path forward will not be easy, but I truly believe the solutions can be found. It will require hard work, courage, and cooperation across the board.

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Housing Assist Coldwellbanker