Housing Finance Reform on the Horizon

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The Federal Savings Bank informs readers of the reforms the government is making to federal-backed and FHA mortgages.

VA and FHA home loans at The Federal Savings Bank

The Federal Savings Bank

The number of private lenders for mortgages was just 14 percent in 2012. Before the recession in 2006, private sources made up 67 percent of loans.

When the housing market collapsed in 2008, lawmakers voted to bail out government-sponsored enterprises Fannie Mae and Freddie Mac with taxpayer money. Five years down the line, Congress is making plans to reform government-backed and FHA mortgages, which currently account for 90 percent of the all mortgage loans. The Federal Savings Bank has been explaining these reforms to interested clients.

According to Bloomberg, the number of private lenders for mortgages was just 14 percent in 2012. Before the recession in 2006, private sources made up 67 percent of loans, making the current balance between GSEs and private lenders unprecedented and unsustainable.

“We find that consumers are shifting away from private sources for loans, however, The Federal Savings Bank is still able to offer many federally backed loans thanks to our concentration in veteran home loans,” says Nick, a banker at, The Federal Savings Bank.

It was irresponsible offers on the part of lenders who funded subprime mortgages to Americans who couldn't afford their homes that influenced Congress to draft proposals that would effectively shift the GSE lenders away from government control. There are a few options the government is considering to implement finance reform, each with their own set of consequences.

Reform Impact on Borrowers
Reform could help bring the mortgage market back to balanced lending, offering credit opportunities to a range of Americans and resulting in a more sustainable and stable housing market. However, if the government decides to completely abolish the current borrowing opportunities and credit availability for homeowners, particularly those with a lower income, the housing market may take longer to fully recover.

While reform is necessary to push borrowers away from government-backed mortgages and into the private market for economic sustainability, the effect on homeowners could mean higher interest rates and payments. With many borrowers currently enjoying the opportunity to get a low rate mortgage with interest near-historic low levels, any increase could impact the growth of the housing market as it may deter first-time home buyers from applying for a loan.

"You have to assume that almost in any future model being drafted, loans will be more expensive," David Stevens, CEO of the Mortgage Bankers Association, August 7th.

GSE Reform on the Docket
While nothing has been set in stone for housing finance reform yet, Congress has already brought three different reform bills to the table: the Housing Finance Reform and Taxpayer Protection Act, the Protecting American Taxpayers and Homeowners Act and FHA Solvency Act of 2013.

A major consideration for all of these proposals involves consumer protection standards to keep the best interest of homeowners and borrowers in mind for long-term practices against predatory lending. With the housing market recovering and more Americans considering homeownership again, housing finance reform will lessen the uncertainty in the mortgage market. Lawmakers will have to decide on the best proposal for finance reform - one that will ensure affordable credit and mortgage refinance opportunities to Americans, require transparent regulatory lending and move toward a sustainable and stable balance of lenders.

Contact the Federal Savings Bank, a veteran owned bank, to find out more about affordable mortgage options.

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