Winners and Losers In Finance Reform
President Obama on Friday essentially declared the death of the existing US housing finance system, beginning a process that will likely take years and will change the way Americans buy and own homes forever. But just who are the winners and losers from the administration's plan for unwinding and replacing mortgage giants Fannie Mae and Freddie Mac?
Among the biggest winners will be larger banks that are willing to invest in home loans, by allowing them to hike fees they charge to customers for mortgages. Wall Street firms who have stayed away from the mortgage credit market because of record low interest rates and government competition also stand to gain from the proposed changes. Many of these non-banking agencies have been redesigning mortgage finance departments since 2009, laying the foundation for private lending.
Another sector that stands to gain from the reforms is the mortgage insurance industry. These firms protect the lender's interests in a loan where less than 20 percent of the principal is covered by the down payment. This type of insurance is required by lenders and is paid for by buyers.
But Obama's plan isn't exactly good news for everybody. Homeowners, and Americans looking to buy, will be the hardest hit by the changes. Treasury Secretary Timothy Geithner said as much in statements made on Friday, saying that the cost of securing a mortgage would rise in the coming years as government's role is reduced and the private sector moves in to fill the void.
In the end, nobody really knows what the cost effects of the reforms will be for everyday Americans, but almost unanimously, insiders agree that the American homeowner stands to lose the most with the proposed reforms.
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