Congressional and Senate leaders have been working on ways to reduce the governments direct involvement in the mortgage industry. They have been making strides with the Senate Banking Committee approving the FHA Reform Bill and now the House Financial Services Committee approved the Protect Tax Payers & Homeowners Act. PATH is directed at ending the tax payer bailout of Fannie Mae and Freddie Mac. Both Fannie Mae and Freddie Mac have been instrumental in the ability for homeowners to obtain a mortgage loan. Prior to the bailout they were functioning without support from the tax payers but needed an emergency boost when the housing bubble burst.
Fannie Mae and Freddie Mac do not issue loans directly. Instead they purchase loans that are issued by banks and other financial institutions. For example if you refinance your mortgage with a small community bank they will be the lender on the loan documents, service your loan and accept your payments. Internally most banks sell the loan after it closes. This allows them to issue mortgage loans to the next customer. Banks can only lend a certain amount based on how much they have in deposits. If they held all of their loans in house, rather than selling them to Fannie Mae or Freddie Mac, they would quickly reach their lending limit and be unable to issue new loans until the current borrowers had paid down their mortgages. This relationship works fairly seamlessly and in a normal environment does not require direct intervention from tax payers. The PATH Act is supposed to help get the organizations back on track.
Chairman Jeb Hensarling (R – Texas) said, “The PATH Act creates a housing finance system that’s designed for homeowners so every American who works hard and plays by the rules can have opportunities and choices to buy homes they can afford to keep…With the reforms in the PATH Act, Americans will finally have a housing finance system that is worthy of them.”
What Does the Protect Tax Payers & Homeowners Act Do
• Gives homeowners additional choices in determining which type of mortgage fits their financial goals
• Ends the $200 billion tax payer bailout of Fannie Mae and Freddie Mac
• Phases out troubled government sponsored enterprises
• Increases competition so that the government cannot dominate the housing finance market
The committee held 12 hearings on the issues and heard from more than fifty people. As a result the PATH Act is ready for a full vote. Homeowners should be pleased that this bill will correct provision of the Dodd-Frank Act that have the ability to make mortgages cost prohibitive and raise interest rates. Researchers have concluded that Dodd-Frank can increase the barriers to homeownership for borrowers with bad credit and low incomes. The PATH Act is supposed to help homeowners by giving them more control and enable more people to become homeowners. Stay tuned for more information on the exact components of the bill. In the meantime it is business as usual. If your are considering purchasing or refinancing a home contact an experienced, local mortgage lender. There are many loan programs available that can save you and your family money by lowering your interest rate.
