What GSE Paper Really Says About Administration’s Plans – Frequently Asked Questions

By Donna Borak

Given the high expectations, and long wait, surrounding the Obama administration’s proposal to create a new housing finance system, it was likely inevitable that it would disappoint. Critics said the plan — which offered three options but declined to endorse a single way forward — was tepid, scant on key details and, in the words of Sen. Richard Shelby, “lacked a sense of urgency.” Although the decision to punt the decision back to Congress was not a surprise, some observers had at least held out hope that the administration would offer concrete, innovative ideas rather than vague concepts outlining the size of the government’s footprint in the mortgage market. So which option does the administration like?
Probably the third, although administration officials are forthright that all three options are imperfect. Ostensibly, it didn’t endorse any of the plans, but most observers see the third option as the most practical for several reasons. For one, both options one and two run the risk of eliminating the 30-year fixed-rate mortgage, the traditional form of mortgage credit in the U.S. While some Republicans have suggested the country would be OK without that type of loan, big players in the mortgage market are likely to fight tooth and nail any attempt to restrict or eliminate it. “I think the administration, out of the three options, favors the third because it’s phrased in the most positive way,” said Karen Shaw Petrou, managing director of Federal Financial Analytics. “If you wanted a 30-year fixed-rate mortgage you would have to do something with a government guarantee.”

To read more: http://www.americanbanker.com/issues/176_30/what-the-gse-paper-really-says-1032857-1.html