Mortgage Industry Re-do

The Obama administration Wednesday beckoned the public's input on how it should reform the nation's housing finance system.

The Treasury department and the U.S. Department of Housing and Urban Development (HUD) took the lead in presenting 7 questions to a variety of audiences including housing market professionals, industry groups, academic experts and consumer and community organizations.

The mortgage industry was dealt a severe blow with the near-collapse in 2008 of quasi-public mortgage finance companies Fannie Mae and Freddie Mac. The government-backed entities got into trouble by buying mortgages originated by lenders and then packaging them into bonds that were sold in the bond market.

National investment banks took severe losses as well by bundling mortgages and selling them in a secondary market. In both scenarios many loans were toxic, meaning they were approved for borrowers who did not truthfully represent their ability to pay or were misled about the terms of mortgages they really could not afford. Some loans had interest rates that spiked up after a certain number of months, making the payments unaffordable for those borrowers.

The questions posed by the Obama administration seek public comment on the future of the
housing finance system, including Fannie Mae and Freddie Mac, and the overall role of the federal government in housing policy.

"A well-functioning housing finance system is critical to the long term stability of the housing market," Treasury Secretary Timothy Geithner said in a statement. "Hearing from a wide variety of perspectives as we embark on this process is an important part of establishing a more stable and sound housing finance system for the American people."

Input will be sought both by written responses submitted online in the Federal Register at www.regulations.gov and through a series of public forums around the country.

"This open process will help shape the future of our housing finance system," HUD Secretary Shaun Donovan said. "The Obama administration is committed to engaging the public as we consider proposals for reforming the housing finance system in the context of our broader housing policy goals, and the best steps to get from where we are today to a stronger housing finance system."

Here are the 7 questions:

1. How should federal housing finance objectives be prioritized in the context of the broader objectives of housing policy?

2. What role should the federal government play in supporting a stable, well-functioning housing finance system and what risks, if any, should the federal government bear in meeting its housing finance objectives?

3. Should the government approach differ across different segments of the market, and if so, how?

4. How should the current organization of the housing finance system be improved?

5. How should the housing finance system support sound market practices?

6. What is the best way for the housing finance system to help ensure consumers are protected from unfair, abusive or deceptive practices?

7. Do housing finance systems in other countries offer insights that can help inform US reform choices?


Tell me what you think of this approach and whether you will participate?