Battle Looms over Housing Finance Reform

As part of housing finance reform, the House Financial Service Committee passed a measure that will eventually eliminate Fannie Mae and Freddie Mac and pass the job of bundling most mortgages into marketable securities to private investors. Under the Protecting American Taxpayers and Homeowners (PATH) Act, the government would supervise the quality of securitized mortgages, and the Federal Housing Administration (FHA) would continue to back mortgages to low-income, first-time homebuyers. While critics argue the PATH Act will end the 30-year fixed-rate mortgage and drain the liquidity from the market, perhaps the private sector may be motivated to come up with its own version of the mortgage that has been so popular with consumers. Many housing interest groups—realtors, bankers, builders—would do their best to defeat it, as washingtonpost informs MHProNews. A bill in the Senate would also wind down Fannie and Freddie, but it would insure mortgage securities against catastrophic losses, providing private investors maintained some skin in the game. Although the Senate bill has not made it through committee yet, the debate is shaping up as a welcome initiative to limit the role of government in the mortgage-backed securities market.

(Image credit: CNNMoney)

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