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Mortgages will cost more if government backing ends

An Oakwood home awaits the new owner. Miami Valley homebuyers could soon find themselves digging deeper for a down payment as a result of the Obama administration's efforts to diminish the government's role in guaranteeing mortgages through Fannie Mae and Freddie Mac.

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Mortgage lending bound for changes

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By Randy Tucker, Staff Writer Updated 10:47 PM Friday, March 4, 2011

DAYTON — Home buyers could soon find themselves digging deeper for down payments on more expensive mortgages because the Obama administration wants the government to get out of the mortgage business.

The administration says doing so will reduce taxpayers’ exposure to potential downturns in the housing market since 90 percent of mortgages are now owned or guaranteed by government-controlled Fannie Mae and Freddie Mac.

“Fannie and Freddie have subsidized the housing market for many, many years. If you take that subsidy away, for sure it’ll raise the cost of borrowing for houses,” said Steve Wyatt, chair of the finance department at Miami University’s Farmer School of Business.

The goal is to make private lenders primarily responsible for issuing mortgage credit and for shouldering most of the mortgage market risk. In 2008, the mortgage crisis led the U.S. Treasury to take over Fannie and Freddie, a move that already has cost taxpayers more than $150 billion.

“The more programs we can get out of that the taxpayer is ultimately responsible for, the better off we’ll be,” said Sebastian “Seb” Melluzzo, president and chief executive of Citizens National Bank of Southwestern Ohio.

The government has proposed trimming the size and number of loans that Fannie and Freddie guarantee and requiring at least a 10 percent down payment on all government-backed loans. That would include Federal Housing Administration loans, which have become increasingly popular because of the low down payment requirements.

In the Dayton area, home buyers would have to come up with at least $10,500 to secure a government-backed loan based on the area’s median home price of $105,000.

That could price out some first-time home buyers and middle-income borrowers with less-than-perfect credit — the very people that Fannie, Freddie and the FHA were created to help.

But that’s not necessarily a bad thing.

“I’m an old-fashioned lender, and I believe a deal has got to stand on its own merit,’’ Melluzzo said. “Just because the government is issuing some sort of quasi guarantee, doesn’t mean that person or family should be in that house, especially one they can’t afford.”

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