Obama’s mortgage-market reform plan calls for winding down Fannie Mae, Freddie Mac

The Obama administration’s long-awaited proposal for reforming the U.S. mortgage market calls for shuttering both Fannie Mae and Freddie Mac over a period of five years or more. The two agencies, along with the Federal Housing Administration, currently provide more than 90 percent of housing finance, according to a Washington Post report on Obama’s plan.

In a white paper released this morning, the Obama administration broadly outlines three options for replacing Fannie and Freddie:

• Establish a government agency that would insure mortgages all the time
• Create a government entity that would only step in during times of market crisis
• Have zero government backing for home loans beyond FHA.

Regardless of the proposed plan, Obama warned that any mortgage-market reform would most likely lead to higher mortgage rates, higher fees and down payments for home loans, and the potential for reduced availability of the 30-year fixed rate mortgage.

Other discussion points of the proposal:

• Scale back FHA by limiting the size of loans it can provide and increasing fees and down payment amount
• Make government-backed mortgages more costly so that the private mortgage market can compete
• Focus on providing rental housing for low- and moderate-income communities

Read the Washington Post report.