U.S. may cut backing for pricey home loans. A review of the nation's housing-finance system proposes to reduce government support for pricey mortgages, lowering the limit to $625,500.
The Obama administration is likely to recommend reducing the size of mortgages eligible for government backing, according to current and former officials, a move that could make getting a home loan in high-priced areas more expensive.
Administration officials, who are preparing a white paper on overhauling the U.S. housing-finance system, are looking at scaling back the support provided during the mortgage crisis to help the ailing real-estate market.
In some areas, homebuyers have benefited from a temporary federal policy that has allowed mortgages up to $729,750 to receive government backing. Such home loans typically carry lower interest rates than those without government support because investors are attracted by the official guarantee.
Lowering loan ceiling
The administration is now likely to suggest that Congress allow the policy to lapse as scheduled in September, lowering the loan limit to $625,500.
The proposal to let the higher limits lapse is among the most concrete elements in the long-awaited review, which examines various options for reshaping the role government plays in the mortgage-finance market.
The report, which will in part address the fate of troubled mortgage giants Fannie Mae and Freddie Mac, is scheduled to be released as soon as next week.
The white paper comes in response to one of the prime causes of the financial crisis — a breakdown in the system that funnels money to homebuyers. The collapse of Fannie Mae and Freddie Mac, which sit at the heart of that system, has proved to be the most expensive legacy of the crisis. The government seizure and rescue of the firms in September 2008 has cost taxpayers more than $130 billion.
Review still debated
At the same time, the companies have been essential cogs in the home-loan market, providing billions of dollars in funding to keep interest rates low at a time when most private financial firms have abandoned the mortgage-finance business.
The review is still being debated by policymakers at the White House, the Treasury Department and the Department of Housing and Urban Development, according to sources familiar with the discussions.
"These discussions are ongoing, but the president has not made decisions on any policy options," said a White House official, who like others interviewed for this story spoke on condition of anonymity in order to comment on internal talks.
The report's release has already been delayed twice, attesting to the economic and political challenges confronting its authors.
The housing market is still in the doldrums, and any significant policy changes could have a major impact on the affordability of housing.
Source : http://www.denverpost.com
