Mitt Romney's recent vice presidential pick of Paul Ryan could mean a future housing finance system without the government sponsored entities of Fannie Mae and Freddie Mac, according to a recent HousingWire article.
Ryan, head of the House Budget Committee, released a plan – passed by the House last year – that will cut spending across nearly every government sector except the military. The long-term outlook of Ryan's plan includes a complete wind down of Fannie and Freddie and putting an end to the $188 billion in bailouts so far.
Specifically, his budget would privatize the government-owned organizations, so taxpayers would no longer be put at risk of paying trillions of dollars.
"Taxpayers' exposure to Fannie and Freddie, once an implicit guarantee, has now become an explicit obligation to cover its debts," Ryan wrote in his plan. "The housing-finance system of the future will allow private-market secondary lenders to fairly, freely and transparently compete, with the knowledge that they will ultimately bear appropriate risk for the loans they guarantee."
A completely private system, though, has not existed since Fannie was created in 1938, and as such, many in the industry doubt that it's possible.
Tom Cronin, managing director for financial adviser The Collingwood Group, told HousingWire that private capital would be slow to return until other reforms – qualified mortgage, risk retention and the new servicing standards – are in place and properly understood.
Whatever happens with Fannie Mae and Freddie Mac, the current state of the housing market is still unsure, even though it is on a steady recovery. Any lenders should still invest in loan management software to ensure that borrowers are able to adequately handle their select mortgage.