Admin could faze out Fannie and Freddie

February 09, 2011
Author: Ben Rooney, staff reporter, Ed Henry, contributor (Source: CNN.com, 2/9/11, )

According to a White House official, the white paper will outline three possible courses of action Congress could take to phase out government involvement in the two companies. However, Congress is not expected to make any changes quickly.

While many lawmakers hope to get Fannie Mae and Freddie Mac out of government control, doing so comes with risks and problems. The U.S. mortgage system relies on the agencies to buy mortgages originated by lenders; the lenders then, in turn, fund more mortgages. Eliminating the two giants would make homeownership more difficult for many Americans, especially low- and middle-class borrowers.

Funding for Fannie and Freddie is also an issue. Together they received about $150 billion in federal bailout money during the mortgage meltdown.

The reports outlines three options for Fannie and Freddie:

1. No government role beyond oversight through existing federal agencies.
2. A government backstop role for mortgages during times of crisis only.
3. Government involvement at all times.

Experts have speculated about other details that could be included when the white paper is released. It could, for example, recommend a maximum loan limit for mortgages purchased by the lending giants; higher fees charged to banks in exchange for guaranteeing loans; minimum downpayments from borrowers; and mandated oversights, such as a reduction in the size of Fannie and Freddie’s portfolios.