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Mr. President

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Posted On: 01/25/2017

Question: The election is over and we have a new President. How will the change impact housing?

Answer: While there has been a lot of speculation, the simple answer is that it's too early to tell. That said, there are a number of areas that are sure to be debated.

1. What Should Become of Fannie Mae and Freddie Mac?

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Some experts believe that mortgage costs could increase by 1 percent or more if private companies replace Fannie Mae and Freddie Mac. Fannie Mae and Freddie Mac buy mortgages that meet certain standards. By selling the loans they originate, lenders have new capital to make additional mortgages and the country never runs out of mortgage money.

The government seized these two government-sponsored enterprises (GSEs) at the height of the 2008 financial crisis. In 2012 the government declared that it was entitled to all Fannie Mae and Freddie Mac profits.

The policy questions include such issues as should Fannie Mae and Freddie Mac be combined? Privatized? Downsized and allowed to gradually go out of business? Returned to shareholders? Kept by the government to continue annual payments and hold down the deficit?

There is now a major shareholder suit against the government trying to determine if the takeover was necessary in the first place and whether the government has the right to all profits. In the coming year we should have some idea of where Fannie Mae and Freddie Mac are headed.

2. Should FHA insurance fees be reduced?

Lower FHA fees mean more mortgage financing and thus more home sales, especially by first-time purchasers because more than 80 percent of FHA-backed mortgages go to first-time buyers.

At the start of 2015 the FHA annual mortgage insurance premium was cut from 1.35 percent to .85 percent. The result was that the FHA endorsed more than 300,000 additional loans. Now, with the FHA doing so well, the question is whether a further premium reduction is appropriate, especially since a .55 percent rate was in use as recently as 2012.

3. Will mortgage rates increase?

Higher rates mean steeper monthly costs for new borrowers. Those costs can cause slower home sales and pressure to hold down prices.

Neither the president nor any government agency sets mortgage rates. That said, they could be influenced by government actions and economic policies.

What will happen with mortgage rates? There are arguments suggesting higher rates, steady rates and perhaps even lower rates, but it's too early to suggest where rates are headed. Also, a number of factors no one can control, such as oil production worldwide, will surely impact mortgage rates in the US – and perhaps in ways that will surprise us all.

Peter G. Miller is author of "The Common-Sense Mortgage," (Kindle 2016). Have a question? Please write to peter@ctwfeatures.com.

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