President Obama announced his plan to overhaul the nation’s mortgage system last week and here’s what you need to know.
At the crux of the plan is phasing out Fannie Mae and Freddie Mac so that the government stops backing mortgages. Combined, they own or guarantee half of all U.S. mortgages and back nearly 90 percent of new ones.
[More from Manilla.com: Are You Ready to Buy a Home?]
Under the proposed plan, the private sector would bare the brunt of the market, putting the private lender at risk instead of the government. The private sector would be backed by the government, which will provide oversight and act as a lender of last resort if necessary.
And because the way it could directly impact you may seem a bit hazy, here’s our roundup:
1. More homeowners would be able to refinance. As part of Obama’s refinancing reform, the government would expand the requirements for homeowners who do not have government-backed mortgages. Refinancing, when done right, can help homeowners save thousands each year. The plan would open up the opportunity to refinance to thousands of homeowners.
[More from Manilla.com: 10 Steps to a Financially Organized Life]
2. Some benefits of government-backed mortgages will still be there. Part of the plan would ensure that homeowners still have popular options like the 30-year mortgage at a fixed rate, which has up until now only been offered to homeowners with government-backed mortgages.
3. The reform has been a long time coming. Obama’s first part of refinancing reform came in 2009 on the heels of the housing market crash. Dubbed the Home Affordable Refinance Program, it allowed homeowners in a financial pinch and on the brink of foreclosure to refinance their mortgages, easing their payments. Since HARP passed, Obama has looked to continue the reform, which was hampered by Congress due to partisan stalling.
[More from Manilla.com: 4 Things You're Paying Too Much For]
4. It’s gaining steam in Congress right now. There is currently a bipartisan bill, sponsored by Republican Sen. Bob Corker of Tennessee and Democratic Sen. Mark Warner of Virginia, on the Senate floor that would work towards closing Fannie Mae and Freddie Mac over the next five years.
5. The right and the left have both voiced some doubts. Conservative and liberal economists alike have said the plan may just not work. For example, the American Enterprise Institute’s Peter Wallison wrote in a recent Wall Street Journal op-ed that the Corker-Warner bill may just force a chain of events that will require another government bailout.
More from Manilla.com: