This is the first of two articles I'm going to be posting today on Federal "dis-involvement" in the mortgage market. Among the many problems in the mortgage end of the housing market in the bubble years, the repercussions of which we are still facing, was that the government entities Fannie Mae and Freddie Mac were pretty much horribly mismanaged. And you don't have to be a Tea Party supporter to make that statement--that's pretty much a concensus opinion. One of the arguments for reducing government involvement is that the mismanagement costs taxpayers more than the savings they received by having the government backing these entities. In other words, loan costs were kept artificially down by Fannie and Freddie, but that caused the necessity for a bail out, which pretty much cost everyone the same money they had been saving on their mortgages. Naturally, it's impossible to say dollar for dollar what cost more, but as the federal government is going through a budget reduction phase Fannie and Freddie are certainly going to be in the conversation. My own opinion is that it probably will not change the real costs of owning a home, but again no one will really know until some changes are implemented and the system has time to adjust. More opinions on this in my next post, from the New York Times.
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By Ben Rooney, staff reporterFebruary 9, 2011: 8:20 AM ET
NEW YORK (CNNMoney) -- The Obama administration will issue a proposal later this week recommending the gradual elimination of government-sponsored mortgage backers Fannie Mae and Freddie Mac, a White House official said Wednesday.
The highly-anticipated "white paper," which is expected to be released Friday, will include three different options for reducing the role government plays in the mortgage market, the official said.
While the paper would mark an important development in the debate over what to do with Fannie and Freddie, a final decision by Congress is not expected any time soon.
After being rescued by the government in 2008, Fannie and Freddie have presented a major conundrum for policymakers in Washington.
The problem is that phasing out the two publicly traded companies could raise borrowing costs for homeowners and jeopardize the fragile housing market.
At the same time, Fannie and Freddie represent a major liability for taxpayers, who are on the hook for about $150 billion in federal aid the two institutions have received.
The issue has become politically charged, with some Republicans blaming Fannie and Freddie for contributing to the recent housing bubble. Democrats argue that the institutions help promote home ownership, especially among low- and middle-income Americans.
Given the political challenges involved and the threat to the housing market, any winding-down of Fannie and Freddie is likely to take place over a period of years.
A representative for Fannie Mae declined comment. Freddie Mac representatives did not immediately respond to a request for comment.
The three options in the administration's white paper were outlined in published reports Wednesday.
The most conservative of the three options would involve no government role in the mortgage market beyond existing federal agencies, such as the Federal Housing Administration, according to the Wall Street Journal.
The two other options relate to the government's place in the secondary mortgage market, previously filled by Fannie and Freddie. Under one option, the government would backstop mortgages during times of "market stress," while the other recommends that the government be involved at all times.
In addition, officials could also reduce the maximum loan limit for mortgages that Fannie and Freddie are allowed to buy, and encourage them to raise the fees they charge banks to guarantee mortgages.
Other options that could be discussed in the white paper are gradual increases in the minimum down payments on government-backed loans, and an accelerated reduction in Fannie and Freddie's loan portfolios.
View original article: http://money.cnn.com/2011/02/09/news/economy/fannie_freddie_phase_out/index.htm?hpt=T2
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