Plans to Reshape the Mortgage Market

A new plan by the federal government plans to put rules and regulations in place to help prevent massive bonuses for officials in companies like Freddie Mac and Fannie Mae as well as create stronger protections for consumers who sign up for mortgages. According to Timothy Geithner, the system for financing homes “cannot continue to operate as it has in the past.”

The recent announcement comes as Congress is beginning to put more pressure on the Obama administration to fix the problem in the mortgage market. The Treasury Department and the Department of Housing and Urban Development are planning to publish a list on April 15 including questions concerning the government’s role in housing finance issues. The list will also ask about the designs of mortgage products as well as financial protections for the consumers who sign up for those products.

Fannie Mae and Freddie Mac have already received more than $125 billion from the federal government to help bail them out of the mess they found themselves in. Republicans have criticized the administration for not having a plan and that criticism continues. But Geithner told the House Financial Services Committee earlier this week that the administration was going to “take a fresh, cold, hard look at the core problems” within the mortgage financing industry so they can come up with a set of reforms and regulations to correct the problems that have been caused. However, many are still complaining about this plan because they did not set up a timeline in which to devise a plan. Spencer T. Bachus, the representative from Alabama, told the Secretary of Treasury that reform is vital in order to stop the bailouts and to help the American economy bounce back from the problems it is having today.

In response, Geithner said the administration would come out with a plan once the American economy began to stabilize. Currently, the Federal Reserve is planning to enact a $1.25 trillion program next week which will purchase mortgage-backed securities. And if the mortgage rates rise quickly after that happens, the Fed may need to take more action. However, when asked if the government should have a role in guaranteeing mortgages, Geithner said that was the main question that was before him. He went on to say that there are several models worldwide in which nations support the housing finance industry and it works for them. In some countries, the governments even underwrite mortgage insurance, but they do not have the number of mortgages that the United States has.

What do you think the administration is going to do about this situation? Do you have any ideas of how to fix it or do you trust our government to work it out in due time? Let us know your thoughts about the situation.