Dismantling Fannie Mae and Freddie Mac would dent US housing recovery
Senate proposal to replace US government home-loan financiers with mortgage-bond insurer would push up costs and hit first-time buyers
A US Senate plan to dismantle Fannie Mae and Freddie Mac may deliver an unintended blow to a fragile housing recovery.
A draft of the measure, which Senate Banking Committee leaders released on Sunday, would replace the two financiers with a government-backed mortgage-bond insurer. It would cover losses only after private capital bears the first 10 per cent, leading to higher mortgage rates, according to Credit Suisse analysts.
The plan also would eliminate a mandate that a percentage of mortgages go to lower- and middle-income families, threatening to decrease America's homeownership rate.
Senators Tim Johnson and Mike Crapo are trying to pass the measure this year. Outside the Senate chambers, the housing market is showing signs of cooling as tighter lending and higher prices shut out increasing numbers of first-time buyers.
"It certainly slows the rate of recovery," said Kevin Chavers, a managing director at BlackRock and a member of its government relations and public policy group in New York. "It raises the question of what the implications are for the recovery as you raise costs and reduce the universe of people eligible to participate."
Fannie Mae was established in 1938, near the end of the Great Depression, to boost homeownership by making mortgages more available for low- and moderate-income borrowers. Along with the smaller Freddie Mac, created in 1970, the company bundles loans into mortgage-backed securities that are sold to investors with the support of the government.