On August 17th, Treasury Secretary Timothy Geithner gave a speech in Washington claiming that the United States Government will need to have some part in the rebuilding of the mortgage market if we are to succeed. Secretary Geithner states that because the private sector has all but completely bailed from the mortgage market over the past few years, it is essential that the government steps in and play at the very least, a limited role in the restructuring of the mortgage finance system.
At the housing finance conference, Secretary Geithner goes on to indicate that the government intends to reinvent the two government owned mortgage giants Fannie Mae and Freddie Mac.
A detailed proposal of how the restructuring of the mortgage finance system, the reinvention of Fannie Mae and Freddie Mac and how much of a role government should play in subsidizing home ownership will be presented by January, according to the Obama administration.
It is apparent that something needs to be done. Currently, 90% of all new mortgage loans are backed in some way by government entities. 9 out of 10 new loans are backed by Fannie Mae, Freddie Mac or the Federal Housing Administration (FHA). Those figures show how difficult it would be to try to remove the U.S. government from playing a role in the mortgage market.
These talks have also brought debates about whether or not the government should encourage the continuing decrease in 30-year fixed-rate mortgages. These 30-year fixed-rate mortgages almost always require some type of government backing in order to get investors to buy these packaged mortgage backed securities. If it wasn’t for the government backing, we would definitely see an increase in the interest rate and less investor confidence regarding the purchase of the securities. That in itself shows why the government must play some role.
Regardless of the size of the role government will play in the end, we will need the governments help to rebuild the housing finance system. Secretary Geithner stated that, “the failures that produced the system we have today were bipartisan. The solution must be as well.”
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