Administration outlines future for Fannie Mae and Freddie Mac

Friday, June 14th, 2013 By

housing market

The Obama administration has released a long-awaited proposal for getting government out of the mortgage business. Image: TheTruthAbout/Flickr

The Obama administration submitted its plan for the future of Fannie Mae and Freddie Mac Friday. The report is a series of options to consider for getting the government out of the mortgage lending business. The Obama Fannie-Freddie plan proposes higher fees and down payments that could make it harder to get the 30-year fixed mortgage Americans have relied on for decades.

The Obama Fannie-Freddie plan

The Treasury Department offers three mortgage scenarios in which the government is involved on different levels. The Obama administration favors option number three — replacing Fannie and Freddie with private companies to offer mortgage insurance. The private companies would be required to buy reinsurance for the mortgages they guarantee. The government reinsurance would only pay out if the private company is in danger of going under, not if any particular mortgage goes bust. The administration said this option would preserve low-cost access to mortgage credit. However, the administration warned that lax oversight in this system would leave the housing market vulnerable to another crisis.

Fannie and Freddie, plans B and C

Other options in the Obama Fannie Freddie Plan include privatizing the system or replacing Fannie and Freddie with a system for low-income, rural and veteran homebuyers that could expand in the event of a crisis. Privatizing housing finance would get taxpayers off the hook, but would likely boost fees, down payments and interest rates to levels that would put a 30-year mortgage out of reach for many who can get one under the current system. The low-income-rural-veteran option would make private mortgage lenders accountable for risk but was described as problematic because it would have to be designed so that it could expand during a crisis and contract again afterward.

Fixing Fannie and Freddie without jeopardizing housing recovery

The administration has acknowledge that the government provided too much support for housing with too many incentives for investment in housing — primarily in the form of mortgage-backed securities. A huge part of the mortgage business had no regulation or oversight.The administration said that a strategy for the future can’t cut back on government support too much too fast, or the housing market will take even longer to recover. Treasury Secretary Tim Geithner said replacing Fannie and Freddie and fixing the mortgage lending system could take five to seven years.

Sources

Washington Post

Bloomberg

TIME

Previous Article

« The end of the Home Buyer Tax Credit | U.S. home ownership rates

Statistics show that home ownership rates in the U.S. has only increased over the years, but many are losing sight of that "American Dream." Home ownership rates in the U.S. have increased over the years.
Next Article

Paying for Wedding with Aluminum Cans | Crafty or Crazy? »

Once you factor in harnessing the power of the Internet, paying for a wedding with aluminum cans doesn't sound crazy at all. It sounds downright doable... Andrea Parrish and Peter Geyer. Image from Flickr.

Other recent posts by bryanh

Is It Time to Update Your Net Worth Statement?

Given the financial turmoil of the last year, it may be time to reassess your finances and see if the assumptions you made last year are still valid today...

Can Credit Cards Fix Tennis Damage?

Novak Djokovic performed a real no-no at the Shanghai Tennis tournament by slamming his racquet into the ground. Can he fix things with one of his credit cards?
Novak Djokovic may need one of his credit cards to help pay the fines for his latest on-court outburst.  (Photo: Wikipedia.org)

Should I Borrow Money?

When you’re short on cash, there’s a lot to be said for borrowing money. When you know that borrowing won’t put you farther behind, it can make good sense…