The Federal Housing Finance Agency (FHFA) is planning to reduce the maximum amount of home mortgages backed by Fannie Mae/ Federal National Mortgage Association (OTCBB:FNMA) and Freddie Mac/ Federal Home Loan Mortgage Corp (OTCBB:FMCC) according to a report from The Wall Street Journal.
FHFA’s new objective
The agency’s objective is to limit the government’s role in the mortgage market and allow the private market to take a bigger role. Many believe that the real estate industry and members of the Congress will oppose the plan because it will negatively affect the slow recovery of the housing market.
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The president of the National Realtors Association, Gary Thomas, commented that the proposal “would be counterproductive to make changes to the loan limits before private capital is fully engaged.”
Fannie Mae and the Federal National Mortgage Association (OTCBB:FNMA), as well as Freddie Mac and the Federal Home Loan Mortgage Corp (OTCBB:FMCC) currently guarantee mortgages with balances as much as $417,000 in many parts of the United States. The government-sponsored entities (GSEs) support mortgages as high as $625,000 for homes that are located in expensive housing markets (some parts of California and New York) and $721,050 in Hawaii.
Regulating operations of Fannie Mae and Freddie Mac
The FHFA is responsible in regulating the operations of Fannie Mae/Federal National Mortgage Association (OTCBB:FNMA) and Freddie Mac/Federal Home Loan Mortgage Corp (OTCBB:FMCC). The agency stated that it would gradually reduce loan limits, which is an appropriate and effective approach to reduce the mortgage-risk exposure of taxpayers, and to expand the role of private capital in mortgage finance.
“FHFA has been analyzing approaches for reducing Fannie Mae and Freddie Mac loan limits across the country, and any such change would be announced with adequate advance notice for implementation on Jan. 1,” according to the statement of the agency.
Details of the mortgage limit
According to Inside Mortgage Finance, the FHFA might release details of the mortgage limit for Fannie Mae/Federal National Mortgage Association (OTCBB:FNMA) and Freddie Mac/Federal Home Loan Mortgage Corp (OTCBB:FMCC) by the end of September.
The FHFA has the authority to reduce the maximum mortgage backed by Fannie Mae and Freddie Mac without the approval of the Congress.
Last month, President Barack Obama expressed his support to limit the government’s role in the mortgage market and to end the business model of Fannie Mae and Freddie Mac. A bipartisan bill proposed in the Senate aims to establish a Federal Mortgage Insurance Corporation (FMIC) to replace FHFA. The new entity’s role is similar to the FDIC.