Keat Foong: Another Nail in the Coffin?
- Aug 21, 2012
By Keat Foong
Is this one more nail in the coffin for low-interest, long-term, mortgages for homeowners?
The Obama Administration says it is taking further action to facilitate the eventual closing of Fannie Mae and Freddie Mac. The Treasury Department announced three steps:
-An increase in the rate of reduction of the GSEs’ investment portfolio: from 10 percent to 15 percent
-The GSEs will submit an annual plan on actions to reduce taxpayer exposure to mortgage credit risk
– Fannie Mae and Freddie Mac will forward all profits to the Treasury. They will no longer need to submit 10 percent of dividends to the Treasury.
The profit sweep is intended in part to prevent the GSEs from retaining profits, rebuilding capital and returning to the market, says the Treasury.
And, Fannie and Freddie have recently been profitable, so taxpayers may have now have a better chance of benefiting from the new rules.
Fannie and Freddie have provided for implicit government backing of housing securities, thus bringing down the cost of singlefamily and multifamily mortgages. While they have no qualms with ending government support for homeowners, however, investors are arguing that they need government support for themselves. One argument is that the multifamily side of housing has been healthy, unlike the singlefamily sector.
If the government drastically curbs homeownership, however, that may present a big shock to the economy. Such considerations may prevent any rash legislative action in 2013. For that reason, perhaps government support for favorable interest mortgages for homeownership will slowly, though surely, become a thing of the past. Uninformed by the media, consumers thus far do not seem all that concerned.