Realtors in Nashville cheered when Senator Bob Corker told them the best thing government can do is “stay the heck out” of the housing market. But the applause stopped Tuesday as Corker outlined his plan to get the government out of the mortgage market.
Over a 10 year period, Corker wants to wind down Fannie Mae and Freddie Mac, which back 90 percent of all new home loans. That’s so investors will buy bundles of mortgages, allowing banks to make more loans and keep the market moving. The Republican senator says he figured real estate agents might be skeptical.
“I can say this about every industry I know in America, ok. Everybody is a strong supporter of free enterprise until it affects them in an adverse way.”
Members of the Greater Nashville Association of Realtors say some people would not have become homeowners if it weren’t for Fannie and Freddie. They worry private investors might demand higher interest rates or larger down payments. Christie Wilson owns her own real estate company.
“Right now we’re really making some strides in this market getting good again, and it just concerns me how the consumer will take this, and at the end of the day, it’s the main street that makes the decision.”
Wilson calls government involvement “a double-edged sword.” She and others say they too would prefer privatization, so long as it doesn’t slow down a real estate recovery.
Highlights from Senator Corker’s Plan to wind down Fannie Mae and Freddie Mac:
Wind Down of Fannie Mae and Freddie Mac: Reduces each year the percentage of newly issued mortgage-backed securities’ (MBS) principal that is guaranteed by Fannie Mae and Freddie Mac. The percentage guaranteed must be reduced to zero within 10 years, at which point MBS will be wholly privatized.
Mortgage Market Transparency: Creates an industry-financed database that makes uniform performance and origination data on mortgages available to the public through the Federal Housing Finance Agency.
Creation of a new TBA Market: Initiates a process for creating deliverability rules and technology necessary for the “to-be-announced” (TBA) futures market with no government guarantee.
Monetization of Business Assets: Directs the sale of any technology, home price indices, and systems currently owned by the GSEs to private investors.
Uniform Underwriting Standards: Replaces the Qualified Residential Mortgage and risk retention with a 5 percent minimum down payment and full documentation requirement.
Residential Mortgage Market Uniformity: Creates a uniform pooling and servicing agreement (PSA) and a new electronic registration system (MERS 2) where all loans are transferred under one system regulated by the FHFA and instructs federal regulators to develop uniform practices and streamline mortgage regulations.