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Federal Government Might Have Less Role In Mortgage System

The Associated Press reported that the Obama administration seeks to reduce the government’s role in the mortgage system, which could potentially make home loans more expensive later on than they now are. The Treasury Department started to develop a plan this week that will slowly remove government-sponsored programs Fannie Mae and Freddie Mac from the mortgage system.

Many Boston real estate lawyers realize that eliminating Fannie Mae and Freddie Mac from the current mortgage system would alter how homes are purchased and redefine who can afford those properties. It would also change almost 70 years of federal housing regulations, dating from Fannie’s establishment under the New Deal and including the emphasis on an “ownership society” in the early 2000’s.

Congress will ultimately decide how far the government's role will go when it comes to supervising and managing mortgages. But the options the administration is left with will likely create a housing finance system where borrowers would rely significantly more on private funding.

The first option proposed would provide the government no role whatsoever outside of assisting poor and middle-class borrowers through federal agencies such as the Federal Housing Administration. The second and third options, however, offer the government a role as a mortgage insurer and allow mortgage companies pass along their fees to homeowners, like those in Boston, who would need a loan.

"It's clear the administration wants the private sector to take a more prominent role in the mortgage rates," said Virginia housing economist Thomas Lawler. "And in order for that to happen, mortgage rates have to go up."

Treasury Secretary Timothy Geithner said the government's plan would probably happen within the next five years and would proceed "very carefully."

For general information on mortgage loans and mortgage borrower rights, visit the Related Resources links below.

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