Thirty year mortgages could be a thing of the past, as multiple bills would dismantle the guarantees that make them possible. Fannie Mae / Federal National Mortgage Association (OTCBB:FNMA) and Freddie Mac / Federal Home Loan Mortgage Corp (OTCBB:FMCC), the controversial home loan guarantors would be phased out and replaced with private options, or not replaced at all.

Fannie Mae

Obama to wind down Fannie Mae and Freddie Mac

President Barack Obama has signaled that he mostly agrees with the Housing Finance Reform and Taxpayer Protection Act, better known as the Corker-Warner Plan, and that he would like to wind down Fannie Mae / Federal National Mortgage Association (OTCBB:FNMA) and Freddie Mac / Federal Home Loan Mortgage Corp (OTCBB:FMCC) over time. The plan, unlike most of what happens in Washington, has bipartisan support and has a real chance of becoming law.

One of the alternatives being proposed, the Protecting American Taxpayers and Homeowners Act (PATH) would also close down the two government backed finance companies. Whatever other details need to be hammered out, most people working on housing reform seem to agree that it’s time for Fannie Mae / Federal National Mortgage Association (OTCBB:FNMA) and Freddie Mac / Federal Home Loan Mortgage Corp (OTCBB:FMCC) to go, mostly so they won’t have to be bailed out in the future.

Fannie Mae and Freddie Mac make strides to pay bailout money

Fannie Mae / Federal National Mortgage Association (OTCBB:FNMA) and Freddie Mac / Federal Home Loan Mortgage Corp (OTCBB:FMCC) have made strides on paying back the bailout money they received, but that hasn’t ended the criticism, as many people say their profits are artificial, owing more to Federal Reserve largesse than any structural changes in the economy.

But whatever the arguments against them, Fannie Mae / Federal National Mortgage Association (OTCBB:FNMA) and Freddie Mac / Federal Home Loan Mortgage Corp (OTCBB:FMCC) have made homes affordable to middle class Americans. According to PIMCO founder Bill Gross, home loan interest rates would be three points higher if it weren’t for the guarantees that banks currently get from the federal government. Three percent over thirty years is an enormous amount of money, and will price many people out of the housing market.

Of course this isn’t necessarily a bad thing. Part of the sub-prime scandal was that people who had no business buying a house were given loans they couldn’t ever realistically pay back. Take away government guarantees and the irresponsible lending should dry up pretty quickly – who wants to make a bet that’s almost a sure loss? But it also means a smaller housing market for the foreseeable future, along with the slower growth that probably entails.


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