“This is another step toward reform, but we are still years away from having either the legislative capacity or market willingness to embrace a new mortgage finance system,” said Isaac Boltansky, a policy analyst with Compass Point Research and Trading.
Under the proposal, Fannie Mae and Freddie Mac would be wound down and replaced with a new government reinsurer called the Federal Mortgage Insurance Corporation, which would provide assistance only after private creditors had taken a hit. The entity would be financed by fees on lenders who want the government backstop.
Included in the outline is a mandate that strong underwriting standards be built into the new system. It would also require a 5 percent down payment for all but first-time buyers, although that requirement would be phased in. Some consumer and housing advocates worry that a system with rigid down payments will prevent less affluent Americans from accessing credit even if a limited government role is retained