‘Foong on Finance’: Obama’s Plan Calls for End to Fannie and Freddie within 10 Years

The Obama Administration issued its proposal for the future of Fannie and Freddie today.

The Obama Administration issued its proposal for the future of Fannie and Freddie today.

The outline proposes winding down the agencies over a period of 10 years, and it puts forward three options, none of them calling for complete privatization or complete nationalization of Fannie Mae and Freddie Mac. However, all three options arguably take a step to the right—not the left‑of the government-sponsored private enterprise system that exists today: they curtail the government’s involvement in the secondary mortgage markets.  

Under the third option, rigorously regulated private entities would perhaps take over Fannie and Freddie’s role of guaranteeing the mortgages. This seems to be the framework first put forward by the Mortgage Bankers Association (MBA) in September 2009.

“We are gratified to see that one of the concepts they articulate closely tracks MBA’s proposal, released 18 months ago,” says Michael Berman, chairman of the Mortgage Bankers Association in a statement. MBA “continue[s] to believe that this is the most prudent approach, one that places the primary risk on private investors and ensures sufficient liquidity during times of economic stress in order to provide affordable mortgage finance in all types of mortgage markets.”

Will those private entities also have a housing mission—a mission to provide affordable housing‑similar to Fannie and Freddie’s? Perhaps not, if President Obama, the nation and its millionaire TV newscasters are intent on continuing to move the country away from the New Deal framework. Others question whether the proposal gives the huge, coveted, Fannie and Freddie business to the banks.

The National Multi Housing Council (NMHC) also applauds President Obama’s white paper. “We would encourage lawmakers to focus their attention-at least in terms of serving the rental housing industry‑on the third option identified in the Obama plan…” says NMHC President Doug Bibby in a statement.

NMHC favors the “federal guarantee at all times” on the rental housing finance side. It will be interesting to see if in the end, both apartment property owners and homebuyers will obtain the same plan and thereby continue to benefit from lower mortgage rates.

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