Obama administration offers first glimpse at Fannie/Freddie plans

Two things to remember: 1) this is just a proposal — or, rather, a set of proposals; and 2) there are lots of ripple effects to be considered.

What am I talking about? The white paper released by the Obama administration outlining its plans for Fannie Mae, Freddie Mac, and the Federal Housing Administration.

It could take five years, but the plan is to phase out Fannie and Freddie and replace them with . well, there are three options currently on the table.

Option 1: Create a government agency specifically to insure mortgages. (FDIC, anyone?)

Option 2: An agency that would only step in "during times of market crisis," in the words of the Washington Post.

Option 3: Get the government out of the mortgage-backing business, except for FHA loans.

The administration points out that, while option 3 may appeal to the ‘government out of everything’ crowd, the effect on the housing market would be significant. To say the least. (Say good-bye to 30-year mortgages, for one.)

So that’s the first draft of long-term options for replacing Fannie and Freddie.

In the short term, there are separate proposals on the table aimed at reducing the government’s role in offering mortgages so the private sector can compete (and eventually take over the job).

One suggestion is to limit Fannie and Freddie to purchasing mortgages worth $625,500 or less. (Currently the limit is $729,750.) Another idea: raising what F&F charge for insuring the mortgages. Another idea: reduce the maximum size of FHA loans and raise the required down payment from 3.5% to 5%. (On a $250,000 house, that would mean the down payment would go from $8,750 to $12,500.)

There are more, and this is just a preliminary, raise-the-flag-see-who-salutes stage. You can read more in the Washington Post and at MSNBC.

About Andrew Kantor

Andrew is VAR's editor and information manager, and -- lessee now -- a former reporter for the Roanoke Times, former technology columnist for USA Today, and a former magazine editor for a bunch of places. He hails from New York with stops in Connecticut, New Jersey, Cincinnati, Columbus, and Roanoke.
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One Response to Obama administration offers first glimpse at Fannie/Freddie plans

  1. Lenn Harley says:

    The secondary mortgage market did what it was designed to do for more than 70 years, providing liquidity to the mortgage industry with sensible guidelines for underwriting.

    The system failed due only to the perfidy and greed of Fannie/Freedie administrators along with neglect and perversion of the guidelines and oversight of Congressional members who lined their pockets with PAC money and favorable loans.

    Fannie and Freddie serve a valuable purpose. Get the corruption out of the system and the system will be just fine.

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