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No Fannie or Freddie means adios, 30-year mortgage

With talks of Fannie Mae and Freddie Mac being shuttered, there are implications many are not talking about.

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The Winding Down of Fannie Mae and Freddie Mac

In the housing speech that President Obama made in Phoenix at the beginning of August, the President advocated the winding down of Fannie Mae and Freddie Mac, while at the same time urging a continued path to homeownership by means of the 30-year mortgage.

There are two bills currently on the floor that offer alternate scenarios for winding down the GSEs. The Street Contributor, Brian O’Connell, provides a helpful summary of each of the two bills:

The Housing-Finance Reform and Taxpayer Protection Act of 2013: Also known as the Corker-Warner Plan, this bill proposes to eliminate Freddie Mac and Fannie Mae and generally kick direct government involvement with mortgage loans to the curb. The bill would give private lenders license to run the nation’s mortgage system — not just as loan originators, but also as issuers of mortgage-backed securities.

The Protecting American Taxpayers and Homeowners Act: Also known as the PATH Act, this mortgage reform bill ends the bailout of Fannie and Freddie, which Congress estimates at $200 billion, and phases out the entities within five years. It also calls for a reduction in the government-sponsored enterprise/Federal Housing Authority loan limits, and gives residential borrowers more mortgage loan options.

Economists argue that the winding down of Fannie Mae and Freddie Mac will lead to the elimination (or a significant decrease in the availability) of the 30-year mortgage. With no Fannie Mae or Freddie Mac in place to guarantee mortgages, the mortgage market will change. That is, without Fannie Mae and Freddie Mac, there would be no guarantee of the conventional loan. For the consumer, this could mean that the 30-year mortgage (since it would be backed by private capital) could be much more expensive.

Founder of the mutual fund Pimco, William Gross, estimates that mortgage rates would rise by 3% without government guarantees. An interest rate increase of this nature would add thousands of dollars to the cost of the 30-year mortgage, making it less appealing to borrowers.

History Repeats Itself

Many would argue that we need the GSE-backed 30-year mortgage. Before the Great Depression, mortgages were short-term, with variable interest rates and balloon payments. With a balloon payment due at the end of the term, loans were often refinanced and, as a result, there was a lot more movement in the mortgage market.

Does this sound familiar? It’s interesting to note that these types of loans are what you would think of when you think of the subprime loans of the 2000s, and what is blamed for the most recent recession. These are the types of loans that tend to facilitate more dramatic swings in the housing market. So, with the absence or decrease of the availability of 30-year mortgage, many purport that we would decrease economic stability; thus, we may see ourselves back in the recession of 2008 before we know it.

Fannie and Freddie Pay their Bills

When having a conversation about Fannie Mae, Freddie Mac, and the 30-year mortgage, you must not ignore the fact that Fannie Mae and Freddie Mac have both recorded profits in the last two years due to the housing market recovery. Additionally, the GSEs have made nearly $132 billion in dividend payments to the U.S. Treasury. (Source: Reuters)

Does housing finance need reform? Yes. Do we need to get out of our conservatorship of Fannie Mae and Freddie Mac? Yes. Do we need private capital to return? Yes. But there may be some financial benefits to keeping Fannie Mae and Freddie Mac around—not only in terms of providing a continued path to homeownership, but also with respect to providing economic stability for all.

Melissa Zavala is the Broker/Owner of Broadpoint Properties and Head Honcho of Short Sale Expeditor®, and Chief Executive Officer of Transaction 911. Before landing in real estate, she had careers in education and publishing. Most recently, she has been able to use her teaching and organizational skills while traveling the world over—dispelling myths about the distressed property market, engaging and motivating real estate agents, and sharing her passion for real estate. When she isn’t speaking or writing, Melissa enjoys practicing yoga, walking the dog, and vacationing at beach resorts.

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4 Comments

4 Comments

  1. Fred Glick

    August 27, 2013 at 10:11 am

    The 30 year mortgage will never disappear.

    Your headline was just a scare tactic and I your reporting is shabby. Did you bother asking people that really know?

    Your not a journalist. Don’t pretend to be one.

  2. JoeLoomer

    August 28, 2013 at 8:03 am

    FHA loans – along with a good portion of mortgages are assumable. The VA Loan is another 30 year product that is government backed (and assumable) and isn’t going anywhere. In some areas (my own, for example), VA buyers account for well over 25% of all home purchases. Credit Unions also already offer 30-year products with little or no money down.

    Navy Chief, Navy Pride

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Austin

Austin tops the list of best places to buy a home

When looking to buy a home, taking the long view is important before making such a huge investment – where are the best places to make that commitment?

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Looking at the bigger picture

(REALUOSO.COM) – Let us first express that although we are completely biased about Texas (we’re headquartered here, I personally grew up here), the data is not – Texas is the best. That’s a scientific fact. There’s a running joke in Austin that if there is a list of “best places to [anything],” we’re on it, and the joke causes eye rolls instead of humility (we’re sore winners and sore losers in this town).

That said, SelfStorage.com dug into the data and determined that the top 12 places to buy a home are currently Texas and North Carolina (and Portland, I guess you’re okay too or whatever).

They examined the nerdiest of numbers from the compound annual growth rate in inflation-adjusted GDP to cost premium, affordability, taxes, job growth, and housing availability.

“Buying a house is a big decision and a big commitment,” the company notes. “Although U.S. home prices have risen in the long term, the last decade has shown that path is sometimes full of twists, turns, dizzying heights and steep, abrupt falls. Today, home prices are stabilizing and increasing in most areas of the U.S.”

Click here to continue reading the list of the 12 best places to buy a home…

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Housing News

Average age of houses on the rise, so is it now better or worse to buy new?

With aging housing in America, are first-time buyers better off buying new or existing homes? The average age of a home is rising, as is the price of new housing, so a shift could be upon us.

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The average home age is higher than ever

(REALUOSO.COM) – In a survey from the Department of Housing and Urban Development American Housing Survey (AHS), the median age of homes in the United States was 35 years old. In Texas, homes are a bit younger with the median age between 19 – 29 years. The northeast has the oldest homes, with the median age between 50 – 61 years. In 1985, the median age of a home was only 23 years.

With more houses around 40 years old, the National Association of Realtors asserts that homeowners will have to undertake remodeling and renovation projects before selling unless the home is sold as-is, in which case the buyer will be responsible to update their new residence. Even homeowners who aren’t selling will need to consider remodeling for structural and aesthetic reasons.

Prices of new homes on the rise

Newer homes cost more than they used to. The price differential between new homes and older homes has increased from 10 percent traditionally to around 37 percent in 2014. This is due to rising construction costs, scarcity of lots, and a low inventory of new homes that doesn’t meet the demand.

Click here to continue reading this story…

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Housing News

Are Realtors the real loser in the fight between Zillow Group and Move, Inc.?

The last year has been one of dramatic and rapid change in the real estate tech sector, but Realtors are vulnerable, and we’re worried.

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Why Realtors are vulnerable to these rapid changes

(REALUOSO.COM) – Corporate warfare demands headlines in every industry, but in the real estate tech sector, a storm has been brewing for years, which in the last year has come to a head. Zillow Group and Move, Inc. (which is owned by News Corp. and operates ListHub, Realtor.com, TopProducer, and other brands) have been competing for a decade now, and the race has appeared to be an aggressive yet polite boxing match. Last year, the gloves came off, and now, they’ve drawn swords and appear to want blood.

Note: We’ll let you decide which company plays which role in the image above.

So how then, does any of this make Realtors the victims of this sword fight? Let’s get everyone up to speed, and then we’ll discuss.

1. Zillow poaches top talent, Move/NAR sues

It all started last year when the gloves came off – Move’s Chief Strategy Officer (who was also Realtor.com’s President), Errol Samuelson jumped ship and joined Zillow on the same day he phoned in his resignation without notice. He left under questionable circumstances, which has led to a lengthy legal battle (wherein Move and NAR have sued Zillow and Samuelson over allegations of breach of contract, breach of fiduciary duty, and misappropriation of trade secrets), with the most recent motion being for contempt, which a judge granted to Move/NAR after the mysterious “Samuelson Memo” surfaced.

Salt was added to the wound when Move awarded Samuelson’s job to Move veteran, Curt Beardsley, who days after Samuelson left, also defected to Zillow. This too led to a lawsuit, with allegations including breach of contract, violation of corporations code, illegal dumping of stocks, and Move has sought restitution. These charges are extremely serious, but demanded slightly less attention than the ongoing lawsuit against Samuelson.

2. Two major media brands emerge

Last fall, the News Corp. acquisition of Move, Inc. was given the green light by the feds, and this month, Zillow finalized their acquisition of Trulia.

…Click here to continue reading this story…

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