Federal Housing Finance Agency acting director Edward DeMarco has consistently blocked efforts to offer principal writedowns for holders of federally backed mortgages. Now he’s offering his own plan for fixing the mortgage finance market.
The basic idea: Make Fannie/Freddie/FHA mortgages more expensive for borrowers by increasing fees, thus encouraging them to either go to private lenders or, if the private market won’t offer an affordable mortgage, not buy a home at all.
He also recommends building a completely new infrastructure (taxpayer financed) for the secondary mortgage market, while winding down F&F. It’s part of a three-prong plan: Build (the new infrastructure), contract (Fannie and Freddie), and maintain (foreclosure prevention activities and credit availability).
The problem, as the Huffington Post points out, is that the market isn’t recovered, and DeMarco’s plan would shut many potential (and qualified) home buyers out of the market.
The fundamental problem, which the report acknowledges, is that Fannie and Freddie benefit from an implicit Treasury guarantee that they won’t default, which is helping keep mortgage rates low. In a true market-based system interest rates for homeowners would certainly be higher–and many homeowners likely wouldn’t qualify at all. (Emphasis mine.)
Of course, any plan such as this would require Congressional approval — not likely in an election year. Further, even DeMarco admits that his plan only paints the broad strokes: FHFA’s ideas of the goals, not the means.