Obama to Propose Solutions for Reducing Government Support of Mortgage Market

Congress will choose the path for reforming housing-finance giants Fannie Mae and Freddie Mac.

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President Barack Obama

The Associated Press is reporting that the Obama administration will release long-awaited proposals for reducing government support of the mortgage market, but Congress will choose the path for reforming financially teetering mortgage finance giants Fannie Mae and Freddie Mac. The Treasury Department is scheduled to release a report Friday that lays out three choices for winding down Fannie and Freddie and moving to a more privatized mortgage market, according to a number of people familiar with the administration's approach.

The options are as follows: No government role, except for existing agencies like the Federal Housing Administration; a government role that explicitly guarantees mortgages only when the market is in trouble; a government role at all times, though not through government-supported entities like Fannie and Freddie.

The greater the government involvement, the milder the impact on borrowing costs. But more government involvement also places more taxpayer money at risk. A complete withdrawal by the government would probably end the popular 30-year fixed-rate mortgage or, at least, make it more expensive. Banks would prefer adjustable-rate mortgages that would fluctuate with the markets. Republicans complained that the administration isn't acting more swiftly to put forward a plan, given the multibillions of taxpayer dollars at stake. Republicans have not offered an alternative plan.

The bottom line is that the government needs to lessen its reliance on Fannie Mae and Freddie Mac. Republicans and Democrats need to figure out the best way to do that.

Read more at Yahoo News.

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