Obama Proposes Pulling the Plug on Fannie and Freddie
The Obama administration has proposed the eventual dissolution of Fannie Mae and Freddie Mac in the Treasury Department’s long-awaited report regarding mortgage finance reform. The report, presented to Congress on February 11, calls for a shift of mortgage credit from government to private markets.
Fannie, Freddie, and the Federal Housing Administration (FHA) currently support more than 90% of new home loans. The Treasury report proposed the government’s main roles should be consumer protection, oversight of lenders, and assistance to low- and middle-income homeowners.
The Treasury blamed poor consumer protection, an overburdened and outdated regulatory system, and poor loan servicing practices for the recent housing market crisis. The report also pointed out that Fannie’s and Freddie’s current “profit maximizing” structure completely undermined their original mission of helping low-income and minority buyers purchase homes.
Experts believe that the FHA can’t carry the large loan market share it currently holds successfully for the long-term. “If (FHA) expands beyond its capacity,” the report noted, “it risks being unprepared to anchor the housing market should we suffer another economic collapse.”
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