Lender reform could hinder 30-year mortgage availability

The Senate Banking Committee recently held a hearing to discuss changes to the mortgage servicing system, including the possibility of establishing national standards for all lenders to meet. According to MarketWatch, professionals in the financial industry warned the committee that reforming housing finance companies Fannie Mae and Freddie Mac to limit government guarantees of mortgages could harm the availability of fixed-rate mortgages.

The news source reported Fannie Mae and Freddie Mac currently own 50 percent of the residential mortgage market and charge a fee for guaranteeing credit risk. But lawmakers are looking to reform the two entities as Congress continues to set new regulations on the mortgage servicing industry. Thomas Hamilton, managing director at Barclays Capital, told the committee to rethink the reform.

"Mortgage credit would be less available and the credit availability that you would be able to access would be at a significantly higher price and it would have a significant impact on the housing market," Hamilton told the committee.

Andrew Davidson, president of Andrew Davidson and Company, added, "We'd see that the private markets, when we go through a shock to the financial system, just step back for a while, and it takes a while for them to recover, so during that time period mortgages would be much less available."

Phil Angelides recently wrote in Bloomberg that Fannie Mae and Freddie Mac were not the cause of the housing market crisis, but played a major role in its onset, thus forcing many of the current proposed mortgage servicing reforms.

Citing the Financial Crisis Inquiry Commission's report released six months ago, Angelides said that the government-sponsored entities spent $164 million on lobbying between 1999 and 2008, while increasing purchases and guarantees of risky mortgages to create an illusion of growth to meet investors' and analysts' expectations.

But the GSE did not cause the crisis because they followed Wall Street financial institutions into the risky loans, reported fewer delinquency rates on loans between 2006 and 2009 and the GSE mortgage securities did not lose their value in 2007 and 2008 leading up to the crisis. Rather, they maintained their worth, while private firms crashed.  

More News