“Reforming America’s Housing Finance Market” is the title of the Obama administration’s report addressed to Congress discussing the future roles of Fannie Mae and Freddie Mac and the future of mortgage financing.
The report that was originally due January 31st outlines the role Fannie Mae and Freddie Mac played through out the last decade in the housing boom as well as it‘s demise. As the report states, the Obama Administation’s plan for reform is to “1. Pave the way for a robust private mortgage market by reducing government support for housing finance and winding down Fannie Mae and Freddie Mac on a responsible timeline, 2. Address fundamental flaws in the mortgage market to protect borrowers, help ensure transparency for investors, and increase the role of private capital, 3. Target the government's vital support for affordable housing in a more effective and transparent manner.”
The report goes on to lay out three different scenarios in which administration’s mission might be accomplished to minimize the involvement of mortgage moguls Fannie Mae and Freddie Mac in both the mortgage securitization and origination markets. Mac and Mae are presently responsible for more than 90% of all new mortgages.
Scenario one creates a reality where the government’s mortgage insurance role is limited solely to the Federal Housing Administration and the Department of Veterans Affairs.
Scenario two incorporates the base of scenario one but then places a “guarantee mechanism to scale up during times of crisis”. More of a checks and balances type of program.
Scenario three again lays the foundation with the base of scenario one and then adding a clause which places “catastrophic reinsurance behind significant private capital”. The New York times breaks this down simply explaining in this scenario “private investors would provide a first line of insurance to mortgage securities, but if they failed, the public sector would step in.”
The submitted report further states and reiterates a promise to the limit the government’s role in “private decision-making”.