President’s Speech Foreshadows Possible Changes to Conventional Mortgages

Even with all the government programs out there, from FHA loans that grew in popularity over the past year to VA mortgages to Connecticut’s own CHFA offerings, conventional options remain the most common on a national scale. In fact, about two-thirds of all mortgages come from Fannie Mae and Freddie Mac, whose standards define conventional loans.

A speech President Obama gave on August 6, however, reveals that changes may come soon for these two large lenders. Particularly, his statements focused on dissolving, or at least reducing the capacity, of Fannie Mae and Freddie Mac, as the two companies continue to buy back mortgages even after a nearly $200 billion bailout from taxpayers a few years ago.

If Fannie Mae and Freddie Mac cease to exist, which other organizations or entities would pick up the slack? The President’s plan, appearing general and vague at the moment, focused on locally-directed efforts: “[P]rivate lending should be the backbone of the housing market, including community-based lenders who view their borrowers not as a number, but as a neighbor.”

Better access to 30-year, fixed-rate mortgages and refinancing made up another large portion of his speech. Along with proposing easier refinancing for homeowners with underwater mortgages, the President implied that he wants to grow the increasing prevalence of 30-year, fixed rate mortgages for their positive impact on the economy: “It’s pretty simple: When more people buy homes, and play by the rules, home values go up for everybody.”

Nevertheless, some mortgage experts have poked holes through the President’s arguments and general proposal. According to a piece in the Washington Post, rapidly-rising mortgage rates make refinancing less attractive, and the President has yet to propose a solution as effective as Fannie Mae and Freddie Mac to make 30-year, fixed-rate conventional mortgages available to more borrowers.

If you heard or read in full the President’s Tuesday speech, what did you make of it? Although changes to conventional mortgages would not go into effect after years of reforms, do you think reducing or eliminating Fannie Mae and Freddie Mac is a good idea?