Not only is the Obama Administration pledging to wind down Fannie Mae and Freddie Mac over the next seven years, but its new plan makes it clear that it will constrain the growth of the Federal Housing Administration's single-family loan program.
"As Fannie Mae and Freddie Mac's presence in the market shrinks, the administration will coordinate program changes at FHA to ensure that the private market -- not FHA -- picks up that new market share," according to the Treasury Department's white paper on "Reforming America's Housing Finance Market."
Drafted by Treasury, with major input from the Department of Housing and Urban Development, the joint report is aimed at encouraging private capital to return to the mortgage market.
"As we begin to pursue increased pricing for guarantees at Fannie Mae and Freddie Mac, we will also increase the price of FHA mortgage insurance," the report says.
HUD also will work with Congress to raise FHA's 3.5% downpayment requirement while giving the agency more flexibility to adjust fees and program parameters.
Some politicians have called for elimination of FHA guarantees, but HUD secretary Shaun Donovan told reporters such an idea was "ruled out" in developing the reform plan. FHA is "critical" in ensuring that low- and moderate-income Americans have access to affordable mortgage credit, he said.
"The administration will make sure that creditworthy borrowers that have incomes up to the median level for their area have access to these mortgages, but we will do so in a way that does not allow FHA to expand during normal economic times to a share of the market that is unhealthy or unsustainable," the report says.
Meanwhile, the administration wants to extend Home Mortgage Disclosure Act-type reporting to private issuers of MBS to make sure mortgage credit is available to borrowers in all communities. "To support that, the plan calls for greater transparency by requiring securitizers to disclose information on the credit and demographic characteristics of the loans they package into securities," Donovan said.
