Mortgage Market Debate It's no secret that a lot of mortgage lending is in government-backed loans. Nationally, Fannie Mae, Freddie Mac, and the FHA back nine in 10 new mortgages. The federal government is looking to pull back and see if more private investors and lenders can be lured into the market.

There are legitimate concerns with a prospective federal pull back. There is the possibility of reduced available credit, thus leading to fewer sales and lower home prices. We've already seen some reduction in volume in higher priced homes when limits on loans backed by Fannie and Freddie declined at the beginning of October.

There is also the concern that sellers will find that fewer potential buyers qualify to purchase their properties. Less liberal down payments and lower loan limits could also hamstring trade-up buyers who want to tap their home equity as a down payment for their new residence.

Here's the conundrum: If we went to return to a more market-driven lending environment, we have to attract private investment, which means rates would have to rise. Private lenders and investors require a greater return than public sources of funds. It's worth noting, though, that many private lenders are flush with money they could put to work. What's more, private lenders and investors will add diversity to the market, which it is currently lacking.

The point is, we can see the mortgage market changing. We can't say whether it will be a net positive in the short term, but we think it raises the uncertainly level enough for borrowers to seriously consider taking advantage of the mortgage market as it is today.

Courtesy of Jessica Regan.

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