Publication Date:
Fri, 2011-02-11 02:26
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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 [1].
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
