PATH Act Negotiated With the NAHB in Washington D.C.
If you’ve been paying particular interest to the news lately, then you have probably heard about the overhaul or threatened elimination of Fannie Mae and Freddie Mac, and like many people not employed in the real estate industry, you may not have any idea how those actions will affect you as a future home buyer. The truth is that mortgages held by Fannie Mae and Freddie Mac were a large cause of the stock market crash and the real estate industry’s demise. However, even though these two companies had flaws, the greater problem was a combination of factors which included little or no regulation or oversight of approval of loans by banks and mortgage companies, poorly devised mortgage packages with initial low interest rates that doubled or tripled after a certain time period, and the “everyone should own a home” attitude of the Clinton era.
Originally, Fannie Mae was a government created mortgage company launched right after the Great Depression by President Roosevelt and Congress. The company was conceived to buy mortgages from lenders offering low-income Americans a chance to buy a home using a government-backed loan. The company was de-regulated in 1968 when it became a public corporation, and the government even opened a new company called Freddie Mac to “compete” with Fannie Mae, so that the company wouldn’t become a monopoly. Freddie Mac also was separated from the federal government to become a public corporation in 1989. The names Fannie Mae and Freddie Mac are actually based on the departments of the federal government which were in charge of their structure and development – Federal National Mortgage Association (Fannie) and the Federal Home Loan Mortgage Corporation (Freddie).
A common misconception today is that Fannie Mae and Freddie Mac are still “owned” by the government. The semantics of the term is that these two corporations are “backed” somewhat by the U.S. Government. Fannie Mae and Freddie Mac are able to get investments from many different sources on Wall Street, nationally, and internationally because of their reputation – they truly are “too big to fail.” If Fannie Mae and Freddie Mac were to “go under,” it would cause a greater panic and a global meltdown much worse than the real estate market catastrophe of 2008.
Now, the United States agencies have “learned their lesson” and are trying to figure out how to get the mortgage industry out of the “hands” or actual influence of the government and dole it out to the private sector so that the true capitalism of supply and demand can “take over” dictating interest rates, home pricing, and home buyer qualification. A legislative proposal called the Protecting American Taxpayers and Homeowners (PATH) Act is now being discussed by Congress and the NAHB (National Association of Home Builders). As of now, the PATH Act is shying away from ANY government involvement. However, this is not the direction in which the NAHB wants it to go.
“NAHB believes federal support is particularly important to ensure that 30-year, fixed-rate mortgages, the bedrock of the nation’s housing finance system since the 1930s, remain available at reasonable interest rates and terms,” said NAHB CEO Jerry Howard. “As currently drafted, the PATH Act does not provide the federal support necessary to ensure a strong and liquid housing finance system, and we urge the committee to make the necessary changes. The historical record clearly shows that the private sector is not capable of providing a consistent and adequate supply of housing credit without a federal backstop,” he said.
The PATH Act also wants to eliminate or greatly diminish the FHA program which is a government-backed program for first-time home buyers. If put in the hands of the private sector mortgage companies, brokers, and banks, there may not ever be a “first-time home buyer” without perfect credit and an above $200,000 portfolio. The government’s involvement and influence on the housing market has been, in the past, a good thing. It simply became too much of a good thing and got out of balance. The purpose of the approval process for the PATH Act to make sure that there is a good balance between government regulation and private sector capitalism – just like every good republic is always trying to achieve.
