Friday, February 11, 2011

The Fix is In Part II

Yesterday, I wrote about the recommendations coming from think tanks for how to deal with the problems of Fannie Mae and Freddie Mac.  Mid day today, the Obama administration revealed its plans to fix Fannie and Freddie and create a new system for mortgage lending in the United States.  Although previous remarks by Congressman Barney Frank had led to speculation that the administration would push for a mostly government-run mortgage lending system, the 32 page report released today appears to debunk that prospect in favor of government micromanagement of a private system.

The first paragraph of the introduction lays the ground work for what we can expect. "This paper lays out the Administration's plan to reform America's housing finance market to better serve families and function more safely in a world that has changed dramatically since its original pillars were put in place nearly eighty years ago.

"Our plan champions the belief that Americans should have choices in housing that make sense for them and for their families.  This means rental options near good schools and good jobs. It means access to credit for those Americans who want to own their own home, which has helped millions of middle class families build wealth and achieve the American Dream. And it means a helping hand for lower income Americans, who are burdened by the strain of high housing costs.  But our plan also dramatically transforms the role of government in the housing market.  In the past, the government's financial and tax policies encouraged housing purchases and real estate investment over other sectors of our economy, and ultimately left taxpayers responsible for much of the risk incurred by a poorly supervised housing finance market. 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....Under our plan, private markets--subject to strong oversight and standards for consumer and investor protection--will be the primary source of mortgage credit and bear the burden for the losses...Our plan is also designed to eliminate unfair capital, oversight, and accounting advantages and promote a level playing field for all participants in the housing market."

The Administration's plan does include reducing Fannie and Freddie's role in housing with the ultimate goal of "winding down" the two entities.  "Successful reform will require more than just winding down Fannie Mae and Freddie Mac and reducing other government support to the housing market....The government must also help ensure that all Americans have access to quality housing that they can afford.  This does not mean our goal is for all Americans to be homeowners. We should continue to provide targeted and effective support to families with the financial capacity and desire to own a home, but who are underserved by the private market, as well as a range of options for Americans who rent their homes."

Next week we will look at the specific points of the Obama administration's plan to reform housing.

For related posts, go to

1 comment:

  1. eToro is the ultimate forex trading platform for beginner and pro traders.