Banking and Mortgage and Federal Government - Essay Example

What is evident from the discussion by Timiraos in the journal article is that people who are not credit defaulters or have fairly good credit scores below 620 will have the opportunity to own homes at reduced interest rates as well as reduced percentage required for a down payment from 3.5% to 3% in the two leading financial mortgage organizations: Fannie Mae and Freddie Mac. The program by the federal government has ensured that this is possible but not for everybody and not in every financial institution including banks.

What the federal regulation has not shed into light and which if not properly explained might raise hopes of people for nothing is that those qualifying for the 3% down payment are required to not only have perfect credit when it comes to loan payment but required to have mortgage insurance. Having mortgage insurance is an added cost to the people and hence they are even better off with the 3.5% down payment that was present initially.

The banks also offer mortgage loans for the people but they do not do so for everybody and are even afraid to implement federal regulation as a result of the losses they incur with mortgage defaulters. They are left at losses and to avoid this, they select very few people to provide the mortgages to.

All is not gloomy about the regulations as is evident from the increase in housing contracts by new home buyers. The sales and contracts from the time the federal regulations were announced have increased by around 0.3% and this is very encouraging. The prices of homes have been increasing which makes buying a house on a cash basis very hard for the majority of people. However, with the new regulations, people are bound to get loans to purchase their houses no matter the price.

The federal government is trying its best but with the slow reaction and more negative than positive results of the regulations, they are bound to ease the conditions and make better the regulations. The mortgage is most likely to get cheaper and more affordable to most people including those who have medium records when it comes to credit default or those who had good reasons for the default.

What the federal government should ensure is that such economic issues of that magnitude should be explained to the people in a simpler language they are bound to understand and not have to rely on financial institutions to entirely translate it to them. People are bound to enjoy the benefits and make better decisions when they have first-hand knowledge and understanding. Read More