Changes to Fannie, Freddie could hurt LI

Getting a mortgage could require more money and a higher down payment as the White House begins winding down the federal government's role in housing finance.

In a report issued Friday on privatizing the mortgage financing system, federal officials laid out three options to end the decades-old way of having Fannie Mae, Freddie Mac and the Federal Housing Administration insure or own much of the nation's mortgages, which freed up capital for more lending.

Tougher rules already in place for lenders would be imposed on the federal mortgage giants, raising federal insurance costs and leveling the field for private insurers and investors to step in, the report said.

But some key proposals won't require Congress' vote, and those might hit high-cost areas like Long Island harder. Federal officials are working to phase in a 10-percent minimum down payment on Fannie and Freddie loans and make FHA loans tougher to get. Also, they want to increase fees for federal guarantees of loans.

At the same time, federal officials argue against Congress extending the $729,750 limit on federally insured loans, a limit that will fall back on Oct. 1 to $625,500 for high-cost areas.

"We're making it tougher for qualified borrowers," said Mike McHugh, head of the Empire State Mortgage Bankers Association and of Continental Home Loans in Melville. "It's being ruined by five years of excess and stupid lending. Now everyone wants to restrict the loans that I think can bring us out of that."

But Monte Redman, president of Lake Success-based Astoria Federal Savings and Loan, said banks would benefit from higher costs on federally insured loans, because they'll then be more able to make profitable loans than non-bank lenders, whose bottom line suffers when government doesn't keep insurance and interest rates artificially low.

"There are plenty of banks like Astoria that are making loans and will make more loans to fill the void," Redman said.

Other parts of the plan are aimed at cutting lending risks, including requiring banks to set aside more capital to cover future losses.

Treasury Secretary Timothy Geithner said the proposals could take seven years to implement. Of all the privatizing options sent to Congress, the administration favors the one in which federal "reinsurance" would be offered to mortgage investors, who'd be paid only if the private insurers are wiped out.

"We're going to proceed on this path of reform very carefully so that we make sure we're supporting the process of economic expansion and repair of the housing markets," Geithner said Friday.

With Andrew Smith