Obama Proposes Fannie and Freddie Phase-Out
The Obama administration proposes a reduced government role in home loans with a multiyear phase-out of Fannie Mae and Freddie Mac.
A white paper released today includes proposals that would make Fannie and Freddie mortgages more expensive in the meantime, part of an effort to foster private competition, according to the Washington Post and the Wall Street Journal. The suggestions include phasing in higher minimum down payments of 10 percent for Fannie and Freddie mortgages and requiring higher fees to insure loans.
The government took over Fannie and Freddie during the financial crisis, costing taxpayers $134 billion so far. The white paper has three options for replacing the two mortgage giants, according to the Post account.
One option is a new government agency that would insure all mortgages. Another is an agency that would step in only in times of market crisis. A third option is no government backing for loans besides the insurance provided by the FHA.
The administration also suggests reducing the size of FHA loans, increasing the price of the agency’s mortgage insurance and raising its required down payment from 3.5 percent to 5 percent. The FHA should be returned to its traditional role as a provider of mortgage credit for lower income Americans, according to the white paper.
The plan “dramatically transforms the role of government in the housing market,” the report (PDF) says. “Going forward, the government’s primary role should be limited to robust oversight and consumer protection, targeted assistance for low- and moderate-income homeowners and renters, and carefully designed support for market stability and crisis response.”
A press release has more information.
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