What are the GOP’s Plans for Mortgage Reform?

The Republicans have been talking about the problems with mortgage reform since the Obama administration introduced plans to help troubled homeowners. But recently, the GOP has offered some of its own ideas about mortgage reform.

The Republicans in the House of Representatives have one bill that would limit the role of the federal government in guaranteeing mortgages. The bill would do this is by increasing the fees normally charged by Freddie Mac and Fannie Mae for the purposes of insuring a mortgage. These are the two largest government backers of mortgage loans and they sit at the cneter of the ongoing mortgage meltdown. By increasing the fees that Freddie Mac and Fannie Mae charge to insure loans, the market would slowly push them out and make way for more private sector insurers.

The House also wants to reduce the portfolios of Freddie Mac and Fannie Mae. In the first year, the two companies would have a cap of $700 billion in mortgage insurance, which would drop to a maximum of $250 billion by the fifth year.

A third bill being discussed by the Republicans in the House would remove the "risk retention" exemption that Fannie and Freddie enjoy. This rule requires institutions that secure mortgage loans to keep at least a five percent financial interest in the mortgage that they secure.

Fourth, the plans of the Republicans would put a salary cap on the executive salaries at Freddie Mac and Fannie Mae. Many people are opposed to this because the two institutions are complicated business that they claim need qualified people to run them. As a result, the high salaries are needed.

Finally, and possibly the most controversial bills that the Republicans would like to pass would do away with the Obama administration’s Home Affordable Modification Program, a piece of legislation that has helped troubled homeowners avoid losing their homes through foreclosure. The program, which is often referred to as HAMP, achieves this goal by offering incentives to lenders to modify those mortgages of homeowners who are having trouble making their payments. While it has helped hundreds of thousands of people stay in their homes recently, it has fallen short of its goal of helping millions. The Republicans think they can do better and help more people with their plans and ideas.

Either way, legislation is several months away from passing and it will be even longer before any new legislation is enacted. Do you think the Republicans should be overhauling the current mortgage relief and modification programs? Or should they let them continue?

Changing the role of Fannie and Freddie in the mortgage world is an important component in closing the book on the housing bubble and crash. Both agencies were effectively nationalized in 2008. The Federal Housing Finance Agency, their regulator estimates that bad loans on the homes thehy back could require as much as $363 billion in bailout money by 2013. Either way, the government has been subsidizing the mortgage and housing market for the last 60 years and it looks likely that this will change in some way. Look for higher rates in future years.

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