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.)