FHFA head has his own plan for the secondary mortgage market

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.

FHFA's DeMarcoThe 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.

Click here for the HuffPost story.

Click here for the Washington Post story.

Or click here to read FHFA’s detailed plan (PDF).


About Andrew Kantor

Andrew is VAR's editor and information manager, and -- lessee now -- a former reporter for the Roanoke Times, former technology columnist for USA Today, and a former magazine editor for a bunch of places. He hails from New York with stops in Connecticut, New Jersey, Cincinnati, Columbus, and Roanoke.
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One Response to FHFA head has his own plan for the secondary mortgage market

  1. Robert Laino says:

    Mr DeMarco, although you are aginst principal foregivness along with many other people I think is not a good way to look at the economy crisis. Just think of it this way, the more houses we keep out of foreclosure the more jobs there will be, jobs that were lost will come back. For every foreclosure that takes place 10 families are effected with loss of jobs and the list keep going on. I think the way to handle the situation so no-one gets treated unfairly is get the LTV down to at least 80% on a first mortgage, put the balance of on the back end with no interest. As the values start coming back take the balance from the back end and apply to the first. Mind you all of this must be done with a low rate of interest on the first mortgage. If the rate of interest is high we defeat what we are tryimg to accomplish. I have other ideas also, sometimes you must hear strategies from the people who are in this mess created by the Federal gov’t.
    Thank You,
    Robert Laino

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