Treasury plan would end Fannie, Freddie

Saturday, 12 February 2011 00:02 - - {{hitsCtrl.values.hits}}

The Obama administration on Friday laid out initial recommendations for reforming the U.S. housing market, including by dramatically scaling back the government’s future role and eliminating Fannie Mae and Freddie Mac, the federally supported companies that nearly collapsed under the weight of soured subprime mortgages in 2008 and required a $150 billion taxpayer bailout.

The recommendations from the Treasury Department — revealed in a white paper set to be released Friday, excerpts of which were obtained by POLITICO — do not present a single view on whether the government should play a significant role in helping increase and guarantee credit in the housing market — they only present options and ultimately leave the issue to Congress.

While Treasury’s white paper does not constitute a conclusive legislative proposal, it lays down a critical marker by aligning the administration with the view that the federal government should not be in the business of making home ownership possible for all Americans.

“[O]ur plan … dramatically transforms the role of government in the housing market,” the Treasury paper says. “In the past, the government’s financial and tax policies encouraged housing purchases and real estate investment … and ultimately left taxpayers responsible for much of the risk.”

In laying out its view on the government’s future role in the housing market, Treasury concludes: “The government must also help ensure that all Americans have access to quality housing that they can afford. This does not mean our goal is for all Americans to be homeowners.”

The complexity and political sensitivity of unwinding the GSEs, as Fannie and Freddie are known, and determining how they should be replaced, will make resolving the issue by the close of the current Congress difficult, many experts believe. Republicans will likely want to wind down the GSEs more quickly than the Treasury plan suggests.

Rep. Scott Garrett (R-N.J.), who chairs a House Financial Services Subcommittee with jurisdiction over the GSEs, has criticized the pace at which Fannie and Freddie are selling off their combined $1.5 trillion mortgage portfolio. But Garrett has stopped short of drafting legislation to end the government’s role in the housing market.

Treasury also says in the report that it will work to ensure that Fannie and Freddie “have sufficient capital to perform under any guarantees issued now or in the future and the ability to meet any of their debt obligations.”

The paper says that any plan to wind down Fannie and Freddie must be tailored to avoid damaging a still-recovering housing market.

“This plan recognizes the fragile state of our housing market and is designed to ensure that reforms are implemented at a stable and measured pace to support economic recovery over the next several years,” the document says.

Beyond the GSEs, Treasury says the administration “will mobilize all tools available to address the nation’s broken system of mortgage servicing and foreclosure processing. Taken together, these steps will help restore trust in the underlying foundation of the mortgage market so borrowers, lenders, and investors have the confidence to purchase a home, issue a loan, or make an investment.” (www.politico.com)