Obama Administration Proposes Tougher Mortgage Guidelines and Increased Pricing (Rates) to You

In a time where our housing marketing is not out the woods and many who want to keep their home are having a difficult time refinancing; the Obama Administration released their proposal for "winding down" Fannie Mae and Freddie Mac.  They plan on phasing the government out of the GSEs over the next 5 to 7 years.  

Here are some of the highlights of the reform plan as released by the Treasury Department on Friday:

Phasing in Increased Pricing at Fannie Mae and Freddie Mac to "level the playing field".  The Obama Administration believes that if they increase conventional mortgage rates, it will help private lending have a fair chance at originating mortgage loans.  If you've been reading my blog, you know that Fannie and Freddie have been increasing their pricing by their LLPA's (Loan Level Price Adjustments).   Adjustments to pricing translates to higher mortgage rates in addition to what the market pricing would be.  Higher rates means that Seattle area home buyers and those seeking to refinance will qualify for less.

Reducing Conforming Loan Limits.  Currently in King, Pierce and Snohomish counties, we have a temporary high balance conforming loan limit of $567,500.  This plan confirms the governments intent to "rest as scheduled on October 1, 2011 to levels set in the Housing and Economic Recovery Act (HERA).

Phasing in Minimum 10% Down Payment.  In my opinion, this isn't a huge deal for Fannie and Freddie mortgages…as long as we still have FHA.   Speaking of FHA…

"Returning FHA to its Traditional Role".   FHA has become the mortgage du jour in many cases when a borrower doesn't have 20% down payment…you never know what you're going to get with a PMI underwriter.   The Administrations proposal for FHA includes:

  • allowing current high balance loan limits to expire on October 1, 2011
  • increase the annual mortgage insurance (again) by 0.25 basis points
  • "lowering the maximum loan to value ratios…and adjusting pricing".  FHA plans on increasing the minimum down payment from 3.5%.

Increased mortgage disclosures for consumers.  What happened to simplifying the process?  I've found that HUD's Good Faith Estimate and the Fed's Truth in Lending have not helped consumers.  New disclosures are being worked on and hopefully what ever our government creates, will be more clear and concise than what I've seen.

Here is the entire 32 page Reforming America's Housing Finance Market – A Report to Congress.



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