The U.S. Treasury Department takeover of mortgage entities Fannie Mae and Freddie Mac could "short-circuit" the role of the entities during real estate downturns and lead to higher down-payment requirements and lower home-ownership rates, the California Association of Realtors cautioned in a statement Monday afternoon.
"Without an institutionalized mortgage-backed securities market, mortgage capital will be less predictable and more expensive, and adjustable-rate mortgages could become the standard loan for home buyers, as could higher down-payment requirements," said Joel Singer, executive vice president for the trade association, in a statement.
"The 30-year, fixed-rate mortgage as we know it will no longer be readily available for most home buyers and may effectively disappear. The result could be a dramatic decline in home-ownership rates in California and across the nation."
Singer also stated that the short-term impact of the Treasury Department’s move could be positive in calming the market and restoring confidence, but "in the longer term these entities need to fulfill their historic mission" in promoting home ownership and affordability.
Fannie Mae and Freddie Mac account for the "vast majority" of all new mortgages in California, the group noted.
The National Association of Realtors also issued an announcement about the takeover deal on Monday, with NAR President Richard F. Gaylord stating that the mission of Fannie and Freddie "must not be interrupted."
"NAR believes that the announced plan will help restore confidence in the secondary mortgage market. We appreciate the steps taken to calm the market, make mortgages more widely available and protect taxpayers. This demonstrates that the government is clearly committed to keeping the flow of capital uninterrupted, which is crucial to the housing sector and the economy," Gaylord stated.
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