Categorized | Finance and Mortgage

Banking executives warned that 30-year mortgages could suffer with reform

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During Wednesday’s Senate Banking Committee hearing, banking executives issue a stern warning that the availability of fixed-rate mortgages would be drastically reduced with any kind of reform that limits government guarantees of mortgages. The same executives also claimed that such limitations would also cause rates to increase substantially.

The two companies at the heart of the issue have been no strangers to the limelight. Fannie Mae and Freddie Mac, both companies of which were nationalized as a means of avoiding heavy losses, are the subject of reform, as some lawmakers are hoping to see an almost entirely privatized system that nearly negates any government role. The plan is to make a government guarantee unattractive by making it far more expensive that it currently is.

However, bankers do not see any kind of positive result stemming from such a plan, as they claim that mortgage credit, without a government guarantee, would be less available. Furthermore, the limited credit that would be available would be far more expensive, thus crippling the already damaged housing market.

While both sides continue to argue over the issues at hand, there are some that believe that government’s reform plan could work, but only if it was done through a long, gradual transition. They believe that the longer transition would help the private market better understand what the price of such a guarantee would be, reducing any kind of negative consequences that could happen with immediate reform. The amount of time that they are suggesting would be roughly ten to fifteen years.

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About Drew Wilson

Drew focuses on the Commercial and Mortgage/Finance categories.

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