Last week, the regulators for Fannie Mae and Freddie Mac announced a series of new actions to further the Obama administration’s mortgage refinancing program. Chief among these was a proposal that would force more borrowers to obtain private mortgage insurance.
While most analysts consider this proposal reasonable, the issue under debate at present is who would be responsible for obtaining this insurance. At present, Fannie Mae and Freddie Mac require borrowers to obtain some kind of private mortgage insurance if they make a down payment on a home that is less than 20 percent of the property’s value.
So far, the Federal Housing Finance Agency has only announced that it will be considering a number of alternatives. In particular, they have suggested the possibility that private mortgage insurance costs might be increased so as to limit the expense to taxpayers. Already, Fannie and Freddie have cost taxpayers an estimated $130 billion.
Possible Rate Hike as Part of Deficit Reduction Plan
The announcement by the Federal Housing Finance Agency comes at the same time that President Barack Obama discusses reducing overall costs to taxpayers as part of a wider deficit reduction plan. Obama has confirmed his intention to gradually hike fees charged by Fannie and Freddie for guaranteeing home loans for investors. Fee increases are expected to occur in 2012, though there is no confirmation as to exactly when.
In the long run, these fee increases are designed to reimburse taxpayers for their financial bolstering of these companies. Ultimately, it is actually expected that many investors will revert to purchasing private residential mortgage-backed securities instead.