Homebuyers Should Act Now, Mortgage Costs Will Rise

In 2008 Fannie Mae and Freddie Mac were placed under government control. The US Department of the Treasury in its report "Reforming America's Housing Finance Market" advocates increasing the market share of private mortgage lending companies and reducing the role of Fannie and Freddie - with the ultimate aim of winding both institutions down.

This will make it tougher for people to buy and finance homes. According to the report, "The government must also help ensure that all Americans have access to quality housing that they can afford. This does not mean our goal is for all Americans to be homeowners."

The exact changes will be hashed out in the upcoming months. However, it seems safe to assume that mortgage borrowing post-Fannie and Freddie will look something like this:

• FHA and other government-backed mortgages will be limited to the neediest segments of our society- those of low to moderate income.


• Private mortgage lenders will be taking care of the rest of us, working within the constraints of additional regulation and retaining more of the risk from the loans they originate.


• Fannie and Freddie will lower their loan limits and their market shares will decrease. Down payment and mortgage insurance requirements will increase.

Although outcomes are uncertain, it looks like financing a home in America without Fannie and Freddie will be tougher and more expensive. What it means today is that it may be smart for those who are interested in buying a home to start the process now.