12 Feb 2011

US mortgage market overhaul proposed

1:08 pm on 12 February 2011

The Obama administration has proposed an overhaul of the mortgage market that would limit the US government's role in supporting home ownership.

Under the proposals, the state-backed mortgage guarantee companies Fannie Mae and Freddie Mac would be wound down.

The two organisations have received almost $US150 billion in federal support since the US housing market collapsed.

Treasury Secretary Timothy Geithner said the United States would not do anything to worsen the fragile housing market.

The administration has laid out three options: to guarantee mortgages only to poorer borrowers; support the mortgage market only in times of stress; or to guarantee mortgage investments created by private companies.

The BBC reports the federal government currently owns or guarantees more than 90% of US mortgages.

Congress will now review and debate the proposals. However, it could take some time before any proposal becomes law.

The proposals also include increasing a mortgage insurance premium charged by the Federal Housing Administration, which generally offers lower rates and affordable down payments to home buyers.

Analysts believe the current system helps to keep a cap on mortgage interest rates, and that any change is likely to lead to a rise.

Fannie Mae was founded in 1938. It was a government agency until 1968.

Freddie Mac was created in 1970 to provide competition to Fannie Mae.

They do not lend directly to homebuyers, but buy mortgages from approved lenders and then sell them to investors.