WSJ: Federal Backing of Mortgages Could Be Paid by Industry Fees

The Wall Street Journal is reporting the Obama administration may propose that any federal backing of mortgages be paid for through fees on the lending industry, according to people familiar with the internal discussions.

While the administration hasn’t settled on a plan to revamp failed mortgage giants Fannie Mae and Freddie Mac, a consensus appears to be emerging that some type of government guarantee will be needed to keep the ailing mortgage market functioning.

Some conservatives don’t believe the government should offer any type of guarantee, while others advocate limited, but explicit, backing. About nine in 10 new loans are currently backed by Fannie, Freddie or government agencies.

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Policy makers face challenges determining what types of loans or mortgage-backed securities should be guaranteed and how the industry should be charged for government backing. Government officials want the cost of any explicit guarantee fully offset by the mortgage industry to avoid adding to the federal budget deficit.

But Washington must walk a fine line between pricing a guarantee high enough so it accurately reflects risk, while not charging so much that borrowing costs soar.

Read more at the WSJ here.

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  • There are two principal ways this concept can be funded. The first is to try to project how much will be needed and fund it on an ongoing basis. The second way is to fund it as required.rnrnIf the plan is to fund it on an ongoing basis (as it should be), wait until lenders hear the home appreciation rates which OMB is using with HECMs. Will the same u201cconservativeu201d rates be used here?rnrnIf it is funded as needed, not even the federal government should be sponsoring another form of a Ponzi scheme, i.e., later borrowers will be paying the losses of earlier borrowers.rnrnWhat is clear is that our government cannot support health care, foreign wars, home ownership, green initiatives, General Motors, AIG, Stimulus Packages, Cash for Clunkers, and everything else it is dreaming up without a significant associated cost. It is clear this Administration has all of the programs anyone can think of but fails to recognize they might cost something until it is well down the road to instituting them. Its style is: u201cFigure out what people want. Weu2019ll figure out how to pay for them (maybe) some time in the future.u201d rn

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