Fannie Mae (FNMA)

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Lenders, agents wary of Trump changes to Fannie and Freddie

Sunday Updated Feb 19, 2017 at 2:59 PM



Privatization could stall the housing recovery, some fear

By John Hielscher Staff Writer

As the Southwest Florida real estate market sustains its robust rebound from the economic downturn, some are wary that major changes from the Trump administration could stall the housing recovery.

Newly confirmed Treasury Secretary Steven Mnuchin has backed the idea of privatizing Fannie Mae and Freddie Mac, the mortgage buyers that were bailed out by the federal government and placed into conservatorship in 2008.

"We are pro-Fannie and pro-Freddie," said Roger Piro, a local real estate agent and a director of the National Association of Realtors. "We're concerned that if they are replaced with a private version, it could affect the ability for 30-year mortgages. The private market may decide that those aren't profitable or too risky. We're fighting to keep them, unless they have a good replacement we haven't seen yet."

The two government sponsored enterprises back about half of the nation's mortgages, providing access to loans for a broad range of buyers and support for lenders to make more loans. The 30-year, fixed-rate loan is the popular choice for many home buyers, especially first-timers.

Even in the Sarasota-Manatee region, where 47 percent of home sales were closed with cash last year — the 14th highest rate in the nation — some believe changes to the mortgage program could have an impact.

"We need to protect the buyers who can only afford the American Dream via Fannie Mae and Freddie Mac," said Charryl Youman, an agent with Berkshire Hathaway HomeServices Florida Realty in Venice. "There is always room for improvement in any program, but I would be opposed to reinventing them to the detriment of buyers with the middle- to lower- price budget. Owning a home should not become an elitist amenity."

Others say it is time to get the agencies out of government hands, or at least be reformed so they don't need another bailout.

"In general, I am a fan of privatization," said Leslie Swart, co-owner of Lakewood Ranch-based Blue Skye Lending, which just marked 10 years in business. "However, I do not see our government relinquishing control of Fannie Mae or Freddie Mac anytime soon. Their relationship is very convoluted, but what it comes down to is, our government is making too much money on Fannie Mae and Freddie Mac to let them go at this time."

Increasing supply for lending

Freddie and Fannie were created to expand the secondary market for mortgages.
They buy mortgages on the secondary market, pool them and sell them as mortgage-backed securities to investors on the open market. That helps increase the supply of money available for mortgages and home purchases.

But critics say the agencies helped encourage the risky mortgage lending that led to the housing crisis.

"The Trump administration should move toward a future system in which private markets take the risks in mortgage lending, not taxpayers, and the basic infrastructure of the system is in a government utility, not a too-big-to-fail duopoly," Mark Zandi, chief economist at Moody's Analytics, recently wrote.

After getting torched by bad loans during the Great Recession, mortgage lenders tightened their credit standards, and many potential home buyers found they could not qualify for loans. An estimated 6 million fewer loans have been issued since the housing bust because of reluctant lenders.

While credit has loosened up in recent years, many borrowers — especially younger ones — still struggle to get loans to buy homes.

In Florida, the homeownership rate fell 8 percentage points to 64.4 percent last year, the lowest level since the government started tracking in 1984. The state's homeownership rate peaked at 72.4 percent in 2006, just before the economic downturn.

Nationwide, homeownership dropped to a record low of 63.4 percent last year.
Still, a slim majority of Floridians believe now is a good time to buy a house, according to a new survey by the University of Florida. They cite favorable interest rates — which could be rising this year — low home prices, the availability of homes and favorable economic conditions.

"Home ownership is seen as an important way to accumulate wealth and build assets over time, in particular among low-income and minority groups," said Hector H. Sandoval, director of the economic analysis program at UF's Bureau of Economic and

In Southwest Florida, sales of existing and newly constructed homes have rebounded in recent years after plunging during the Great Recession and its aftermath.
Single-family and condo re-sales hit record levels in 2014 and 2015 here before easing off about 2.5 percent last year. Housing starts jumped 20 percent in 2016 over the year, and analysts say the baby boomer-driven demand still outpaces the supply of new homes.

Meanwhile, local experts point to other possible reforms that could either help or hurt the real estate market.

The Trump administration has pointed to changes in the Dodd-Frank act, which created the Consumer Financial Protection Bureau with oversight over the mortgage industry. Swart says she supports financial regulation, but the CFBP has not accomplished it.

"While it sounds good on paper, people should not be fooled, it has actually caused increased confusion in the industry and led to increased costs to the consumer, with no added benefit," she said.

Youman says new FEMA flood zones have had an impact on home sales here.
"I recently had a buyer walk away from a home because its flood zone changed, which substantially increased the insurance required under his mortgage," she said. "That is going to make that home very hard to sell — and it's still sitting on the market."
Still, lenders and real estate agents say Southwest Florida will be fine, with its weather, beaches and culture always attracting new residents.

"People will continue to buy homes here," says Swart, noting a recent increase in the inventory of homes for sale.

"There was a lot of pent up demand, and the dam has burst," adds Youman. "The pre-election jitters are apparently gone, interest rates are still very good, and as the prices continue to adjust upwards, people are jumping off the fence."