FANNIE AND FREDDIE TO RETIRE?

In a bi-partisan effort, both Democrats and Republicans reached a deal on the future of Fannie Mae and Freddie mac. Members of the U.S. Senate Banking Committee are in the beginning stages and are currently outlining their plans to "wind down" Fannie and Freddie and replace these two financiers with another government reinsurer to change the face of the game. Democratic Committee Chairman Tim Johnson and Republican Senator Mike Crapo spearheaded talks that have been in the works for months. This agreement was based on a proposal some time ago by Democratic Senator Mike Warner and Republican Senator Bob Corker. Senators Johnson and Crapo say that they fine tuning the details of the bill which they plan to introduce "in the coming days." Senator Crapo stated "This agreement moves us closer to ending the five-year status quo and beginning the wind down of Fannie and Freddie, while protecting taxpayers with strong private capital, building the components for a stable secondary market." The new entity would mandate private financiers to take at least 10% or more of the hit on the first losses of mortgage debt. Then and only then, would the government provide assistance to these private lenders. Another component of the plan stipulate that is sure to be controversial is the strong underwriting standards which will require everyone except first time home buyers to put a minimum down payment of 5%. For obvious reasons, this will be difficult for a lot of home buyers out there who are otherwise, well qualified. There are a lot of hard working Americans with good credit who may have trouble coming up with a 5% down payment. This of course depends on the purchase price but if you factor in the typical closing costs, inspections and an appraisal, things start to get expensive. Take for example, an $80,000 home. The buyer will have to put $4000 down at closing, $300-500 for inspections, $300-$400 for appraisal and closing costs can run between $2500 and $7500. Sometimes more! That's a lot of money. "There is near unanimous agreement that our current housing finance system is not sustainable in the long-term and reform is necessary to help strengthen and stabilize the economy. This bipartisan effort will provide the market the certainty it needs, while preserving fair and affordable housing throughout the country." Senator Johnson said in a statement. The two Senators also remarked that their plan is to "eliminate affordable housing goals" and replace it with housing related funds. The Senators hope to ensure that housing is available to all types of borrowers and renters. Analysts and experts don't expect to see any reform take place until after the 2016 Presidential election. My prediction is that the uncertainty will be counterbalanced by temporarily lowered rates to ease concerns over the long term effects. There are so many variable though, who knows. I have a feeling that though there are obvious issues present, it is ultimately in the best interests of home buyers and tax payers alike. Not to mention that even if the bill is passed in the Democratic controlled Senate, it may reach opposition in the Republican controlled House of Representatives. Perhaps that will provide for some much needed further discussion and possible alterations of the bill.