Obama administration releases proposal to phase out Fannie and Freddie

The Obama administration on Friday put forth three possible plans on reducing the federal government’s involvement in the mortgage industry and phasing out Fannie Mae and Freddie Mac, the Wall Street Journal reported.

The proposal offers three possible options on how to reform the mortgage industry.

The first option would put the mortgages primarily in the hands of the private sector. The federal government would continue to play a role in the industry through the Federal Housing Administration and several other small housing agencies, but in a much smaller capacity.

The second option also places the mortgage industry mainly in the private sector, with government buying or guaranteeing loans only during “financial shocks” that cause private lenders to back down.

The third option creates privately owned companies to replace some of Fannie and Freddie’s functions. They would buy mortgages from banks and sell them as securities. The government would back securities that met certain criteria, and regulate the companies with a setup similar to that of the Federal Deposit Insurance Corp.

Experts expect any plan to phase out Fannie and Freddie will take at least five to seven years.

According to the report, the housing industry’s response to the three proposed options was lukewarm, and industry officials had hoped for a more detailed proposal.