Treasury offers first peek at Fannie/Freddie replacement plan

The Treasury Department has released its recommendation for a Fannie/Freddie replacement. It would serve as a safety net for the mortgage finance system — including providing federal backing for loans to lower-income homebuyers.

This is just Treasury’s broad-stroke idea for a replacement for the GSE’s, and details will probably take some time to make their appearance. As Bloomberg put it, “deep divisions between Democrats and Republicans in Congress make it unlikely that mortgage-finance reform will be enacted this year.”

What everyone seems to agree on:

  • The government needs to reduce its role in the housing market in favor of private capital.
  • Whatever changes it makes will have to be done gradually, to avoid throwing the market into turmoil.

What most people seem to agree on:

  • Federal support for low-income homebuyers, in some form, is a good idea.
  • The government would only offer last-ditch, catastrophic insurance for mortgage bonds. (In other words, shareholders in a lender that made a lot of bad loans could lose their investments.)

The disagreements are in the details: how much of a safety net should the government provide, how much assistance for low-income families, and — considering it actually turns a profit — what’s the role of the FHA?

Stay tuned.

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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