U.S. Lawmakers Backtrack on Pledges by Expanding Federal Role in Mortgages

Clea Benson and Lorraine Woellert

Washington lawmakers, who began 2011 with sweeping plans to shrink the U.S. government’s role in mortgage finance, are heading into 2012 after enacting policies that expand it.

An 11th-hour payroll tax cut extension signed into law last week will for the first time divert funds directly from Fannie Mae (FNMA) and Freddie Mac, the two mortgage-finance companies under U.S. conservatorship, to pay for general government expenses.

That move came after two others that also could increase government involvement: Lawmakers allowed a tax break on private mortgage insurance to expire and raised loan limits for mortgages insured by the Federal Housing Administration. Advocates of private mortgage finance say they are concerned that using fees from Fannie Mae and Freddie Mac is setting a precedent that will keep the government in the mortgage business for a decade or more.

“The goal was, at the beginning of the year, how do we wind these down?” said Edward Pinto, a resident fellow at the American Enterprise Institute, a Washington-based research organization that favors limited government. “And at the end of the year we have further entrenched them and made it more difficult to wind them down, which is classic Washington.”

The Federal Housing Finance Agency, which oversees Fannie Mae and Freddie Mac (FMCC), today directed the companies to increase fees on new mortgages by an average of 10 basis points, or .1 percentage point, effective April 1, to comply with the law…

…Congress’s rush to solve fiscal problems at the end of the year allows decisions to be made without going through the normal deliberative channels that might have produced outcomes more in line with the goal of reducing the government footprint in housing, Pinto said.

“You have these policies being made that aren’t really going through the regular order, and they’re not being discussed and hearings held and testimony taken,” he said. “They’re just being done as an expedient.”…

The complete article is at Bloomberg.

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