Administration outlines future for Fannie Mae and Freddie Mac

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.


Washington Post



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