Small Lenders Protest Government Withdrawal from Mortgage Industry

By Kyle Chezum Updated on 5/2/2011

 

House Republicans are planning a move for the coming months that will take the government out of the mortgage marketplace and leave just the Federal Housing Administration in play.  Reduced government involvement has long been considered a sign of housing sector recovery by many economists and consumers, and allowing the market to rest upon private investors, lenders, and buyers may allow the real estate industry to restabilize.

But the House is already facing opposition from an unexpected source.  Smaller lenders are fighting the proposed changes.  They claim that removing the government from the mortgage marketplace will allow a handful of large banks to take full control of the lending market, effectively crushing all smaller competition.

Fannie Mae and Freddie Mac, along with other federal agencies, currently guarantee 90% of all consumer mortgages in the nation.  Small lenders are prepared to make a case for continued government backing in order to keep competition healthy across the industry.  At this time, the housing market is in a state of such volatility that many fear taking the government out of the equation may bring about unwanted consequences.

The House has not yet released any specific plans but likely will soon.