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Congress reviews mortgage changes

Congress is reviewing reforms to housing finance that could impact real estate financing in Arizona and across the country. Senators are involved in negotiations on legislation that could place Fannie Mae and Freddie Mac into receivership and repeal their charters. Multiple mortgage guarantors would replace these financing agencies in the plan under negotiation.

The Federal Housing Financing Agency proposed a plan that would recreate these agencies into utilities that would be protected by catastrophic loss through federal guarantees. The FHFA also called for a limited number of guarantors because too many guarantors could weaken underwriting standards.

Under the latest proposal being negotiated in the Senate, however, new 10 private-market mortgage guarantors would be established after Fannie Mae and Freddie Mac are placed into receivership. An incentive system intended to encourage lending to low- and middle-income borrowers would replace affordable housing goals.

The Senate proposal does not set a rate of return. Firms could select the markets where they operate. This could result in some real estate markets being underserved.

The Senate and FHFA proposals would establish a government protection like the Federal Deposit Insurance Corp.'s protection for insured deposits. A mortgage fund would support mortgage-backed securities if there were catastrophic losses in the real estate market. The federal government would use fees from mortgage guarantors to pay out losses.

The Senate plan is different than the FHFA proposal because it would utilize a mortgage assistance fees used as an incentive for guarantors to give loans in areas that undeserved. There would be no requirement for lenders to serve those markets, however.

The FHFA proposal, on the other hand, would continue to contain duty-to-serve requirements and fees that are paid into an affordable housing fund. Fannie and Freddie currently have these elements.

An attorney can help negotiate real estate agreements for residential property. A qualified lawyer may help provide the most reasonable options for parties in these transactions.

Source: American Banker, "Cheat sheet: Senate goes own way on housing finance reform," By Ian McKendry, Jan. 18, 2018

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