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Administration Official: Treasury to Offer Three Plans to Phase Out Fannie, Freddie

Mortgage giants Fannie Mae and Freddie Mac will be phased out under an Obama administration proposal.

photo of Jim Tankersley
February 8, 2011

The Treasury Department will propose three different options on Friday for phasing out troubled mortgage lenders Fannie Mae and Freddie Mac and overhauling the federal government’s role in the mortgage market, an Obama administration official said late Tuesday evening.

To replace Fannie and Freddie, the administration will offer a range of choices, including a newly created government guarantee for residential home loans, an extremely limited guarantee that could be expanded in the event of another housing meltdown, or the de facto removal of any federal mortgage backstop.

The Wall Street Journal first reported the plans on its website Tuesday.

 

The federal government assumed control of Fannie and Freddie at the height of the 2008 financial crisis, saddling taxpayers with the risks of a batch of subprime loans mostly issued before the Wall Street crash. The Federal Housing Finance Agency estimates that losses on those loans will run the government between $142 billion and $259 billion.

In the wreckage of the housing crash, Fannie, Freddie, and another government-sponsored enterprise, Ginnie Mae, underwrite 95 percent of all new residential mortgages, a share that will complicate policymakers’ efforts to extricate the GSEs from the mortgage market.

But that appears to be the administration’s plan. Speaking on condition of anonymity, the administration official said that the Treasury Department will propose the eventual elimination of Fannie and Freddie. The official confirmed that Treasury will also support lowering the maximum amount of a mortgage that Fannie and Freddie can guarantee, after lawmakers raised it on an emergency basis two years ago.

The move—and the decision to offer lawmakers a menu of options instead of a single, preferred solution—appears designed to deflect political pressure and to ease the transition away from Fannie and Freddie’s emergency role in the mortgage market. Republicans made the entities a bogeyman during the midterm elections.

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