Fannie and Freddie To Fade Away: Your Costs Rise

The White House has a strategy to close shop. Fannie and Freddie will go away quietly and permanently. They are hoping to phase out the two GSE's within about seevn years. The Obama admiministration proposed three
 approaches to wind down the two agencies. This is a  delicate decision because they now control about 90% of the housing market and the private markets are virtually gone. So, tehy have to receed without creating a funding gap
Weening Us Off The Federal
The administartion will take baby steps designed to begin to turn us away from Government help. The politics that had treatd home ownerships as a right has learned its lesson.
1. To shrink the Government mortgage portfolio by at least 10 percent a year.
2. Create an insurance fund for mortgages supported by premiums paid by lenders, just like bank deposit insurance.
3. Getting out of government subsidies of mortgages by raising fees charged to cover the risk of defaults
4. Limiting the government’s role in housing finance to FHA backed mortgages, turning most of the market over to the private sector.
5. Phasing in a 10% down payment requirement for government guaranteed loans.
The Future For Real Estate Markets
more costly transactions
Right now, the private markets cant compete with cheap Govt money and so that market barely exisits. Increasing the private sector means allowing it to charge more for risk than Govt programs do.
Creating a government-run mortgage guarantee fund similar to bank deposit insurance, paid for by lenders does get the Government out of the susidy business, but that cost to lenders will likely be passed onto buyers, making homes more costly
Eliminating all government guarantees against default would also raise the cost of borrowing, potentially depressing the housing market. Higher borrowing costs will likely put pressure on lower priced markets including first-time buyers. Read higher costs to borrow making it more difficult to buy. And when willing buyers cant, its generally price that comes down to meet demand.
The Winner
The Government wants to increase federal subsidies for rental housing. Shaun Donovan, the secretary of the Department of Housing and Urban Development, said Friday that half of renters spend more than one-third of their income on housing, and one-quarter of renters devoted more than half, according to HUD research.

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