A bill proposed in the Senate yesterday would give consumers access to safe and affordable mortgages even during times of economic distress. The proposal would create a federal Mortgage Finance Agency that would guarantee home loans and then package them into securities, which can be sold to investors.
During extreme economic conditions, private companies that invest in mortgage securities retreat from the mortgage marketplace. That’s what has happened in 2011, when government-sponsored loan programs have guaranteed 90% of the loans used by consumers who purchased homes or refinanced existing mortgages.
Currently, mortgage-guarantee giants Fannie Mae and Freddie Mac perform those tasks, but the two firms needed a taxpayer bailout when the economic downturn caused their losses on loans to exceed their reserves and profits. The new agency would only insure loans that follow strict new underwriting guidelines, which would limit the possibility of future losses.
The bill, introduced by Sen. Johnny Isakson (R-Ga.), has the support of the NATIONAL ASSOCIATION OF REALTORS® because it will:
- Help consumers get reasonably priced mortgages, especially in times of economic distress.
- Protect taxpayers from having to pay for a future bailout.
- Require lenders to use underwriting standards that ensure borrowers are able to repay their loans.
- Have rigorous oversight of the new agency.