By Mike Colpitts
Instead of reducing their role in the U.S. mortgage market as lawmakers assured voters, Congress has increased the government’s part in the home mortgage market, and is expected to keep a major portion of Freddie Mac and Fannie Mae under government control for at least a decade.
Under the agreement to extend the payroll tax cut extension for two months signed into law, the government will divert monies from Freddie Mac and Fannie Mae to pay for “general government expenses.” The move is the first time that the federal government has directed funding away from Fannie and Freddie, expanding the role of the government backed lenders
Congress also approved an increase in jumbo mortgages insured through the Federal Housing Administration in November, just two months after reducing the limit to allow more homeowners with larger mortgages to refinance loans and take out new mortgages at lower rates insured by the government.
Banks and mortgage company representatives said the limit reduction would not impact the number of loans available to jumbo home mortgage purchasers, but could make the mortgage rates they would have to pay higher through banks and mortgage lenders without government backing. The move raised jumbo loan limits to a maximum of $729,750 insured by the FHA.
A tax break on private mortgage insurance was also allowed to expire by lawmakers. The three moves illustrate a Congress that is unable to get much done in regards to Freddie Mac and Fannie Mae after more than a dozen hearings on redesigning the government sponsored enterprises.
The two giant lenders were taken over by government regulators more than three years ago and have cost tax payers billions of dollars to bail out, including failed mortgages that have been directly paid for by funds through TARP and additional proceeds through the Federal Reserve.
The floor on FHA jumbo mortgages will remain at $271,050, while Freddie Mac and Fannie Mae loan amounts will remain at a maximum of $625,500. The increase was extended through 2013. The three lenders currently account for 90% of U.S. loan originations, more than double the number of mortgages during the real estate boom.
At least four proposals have been made in Congress to reduce the role of Freddie Mac and Fannie Mae. In February, Treasury Secretary Tim Geithner issued three options to reduce the role of government lending in mortgage financing, but political fights between Republicans and Democrats has halted any meaningful progress, and little is expected to be done proposed by anyone associated with the Obama administration before November’s election.