THE BASIS POINT

Treasury Gives Congress Mortgage Reform Proposal: Political Bluster vs. Market Reality

Treasury handed off their new White Paper on the future of home finance to Congress today. Worth reading for people who follow closely, but it’s a political document delivered to politicians, who now have some new surface level talking points about chopping down big government.

As for market reality, the most important thing for winding down Fannie and Freddie market share—which is part of this plan—is to reduce the loan amounts of loans they’ll buy from banks from as high as $729,750 to more like $625,500 by Fall. Private investors won’t be as inclined to buy and securitize mortgage pools from banks who originate loans if the government is their primary competitor. Right now today, most major bond players are cutting deals with mortgage banks predicated on the fact that Fannie & Freddie’s eligible loan purchase amounts will drop. More on this topic and what it means for consumers in tomorrow’s WeeklyBasis.