New housing plan could phase out Fannie and Freddie
Fannie Mae and Freddie Mac could be on the chopping block this week. According to the Wall Street Journal, one idea is to phase out the two companies and not replace them. David Gura explains.
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ADRIENE HILL: The White House is expected to offer up some ideas for the future of Fannie Mae and Freddie Mac by the end of the week. According the Wall Street Journal, one idea is to phase out the government backed mortgage companies without replacing them. That could leave most future home loans to the private market.
Marketplace’s David Gura is with us now to help explain. Good morning David.
DAVID GURA: Hey Adriene.
HILL: So, what the biggest changes that a U.S. homebuyer might see coming from these proposals?
GURA: Well it will be more difficult and more expensive for home buyers to buy high priced homes. Right now the government helps home buyers purchase houses with a backstop on mortgages of up to about $730,000. That number would go down to $625,000. I talked to Susan Wachter, a real estate professor at Wharton. And I asked her how big a difference that $100,000 would make.
SUSAN WACHTER: It will make a big difference. Absolutely. And over time, this is likely to come down farther, as well.
Some people might think only well-heeled home buyers would feel that.
HILL: It’s a lot of money, yeah.
GURA: But Wachter told me many customers would probably feel it especially in big cities.
HILL: Now do these proposals have a chance to actually become law? Is this going to happen?
GURA: Since the financial crisis U.S. taxpayers have spent about $135 billion on these two companies. So I don’t think anybody’s really thrilled about that. You know I think there’s agreement the mortgage finance system needs to change. We haven’t seen much in the way of concrete proposals or legislation. In other words, there’s been a lot of talk but not a whole lot of action.
Susan Wachter told me she thinks the ball’s rolling.
WACHTER: Industry needs to be at the table, housing folks need to be at the table. Congress obviously will be there. And the public as well
She says the government is going to move slowly and carefully so it won’t upset the market.
HILL: Marketplace’s David Gura, thanks so much.
GURA: Thank you.