Friday, February 11, 2011

Obama Calls For End Of Fannie Mae, Freddie Mac

NEW YORK -- The Obama administration plans to wind down bailed-out Fannie Mae and Freddie Mac over the next five to seven years, Treasury Secretary Timothy Geithner said Friday.
The taxpayer-owned mortgage giants, which were effectively nationalized in 2008, guarantee nine of every 10 new mortgages along with other government agencies. Delinquencies on home loans backed by the two companies have cost taxpayers more than $150 billion.
The troubled housing market, and the key role sour mortgages played in causing the financial crisis, has led to calls for the federal government to radically reform the way home mortgages are financed. The role of the government in funding those mortgages must also be altered, policy makers, bankers and investors say. Administration officials have vowed to reform the market. In a report delivered today to Congress, the administration outlined its goals for the future of housing finance, and three broad options for legislators to pursue.
The first option calls for a private system in which lenders and investors fund new mortgages, with a limited role for existing federal agencies to subsidize home loans for the poor and other special groups, like veterans.
The second proposal calls for much of the same, but it includes a government backstop for mortgages during times of market stress. If the market froze, the government would step in and guarantee home loans.
In the third option, the administration outlined a much broader government role. Under this alternative, taxpayers would insure securities backed by home loans.
The administration's outline explained the benefits and costs of the various options, but stopped short of endorsing any of them. Critics will likely say the administration punted.
"We are going to start the process of reform now," Geithner said in a statement. "But we are going to do it responsibly and carefully so that we support the recovery and the process of repair of the housing market."
Geithner said it will take another three years for the housing market to recover. The housing sector currently suffers from high foreclosure and delinquency rates, low levels of homeowner equity, and an abundance of homes for sale without a corresponding number of interested buyers.
After that, it will likely take two to three years for policy makers to come to agreement on the government's role in funding home loans, Geithner said. The final step calls for new legislation.

1 comment:

  1. The big problem so far as I can tell is that lenders played fast and loose with their procedures, and in the majority of cases didn't care if they were lending to a person worthy of having a loan. To follow that up, they didn't care if they followed procedures on the recording, assigning, transferring and otherwise documenting ownership of the Notes and/or Mortgages involved.

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