The Obama Administration's Plan for Winding Down Fannie Mae and Freddie Mac
On February 11, 2011 the Obama Administration delivered a report to Congress that provides a path forward for reforming America’s housing market. The Administration set forth a plan to wind down Fannie Mae and Freddie Mac in order to shrink the government’s current role in housing finance in a timely matter. The Administration’s plan focuses on bringing private capital back to the market through a number of different measures including:
- Phasing in increased pricing at Fannie Mae and Freddie Mac to make room for private capital
- Reducing conforming loan limits
- Phasing in a 10 percent down payment requirement
- Winding down Fannie Mae and Freddie Mac’s investment portfolios
- Returning the Federal Housing Administration (FHA) to its traditional role to ensure that the private sector, so that when Fannie Mae and Freddie Mac’s presence in the market shrinks, the private sector, not FHA, picks up the new market share.
The Administration also proposed three possible courses for long-term reform:
Option 1: Privatized system of housing finance with the government insurance role limited to FHA, USDA and Department of Veterans’ Affairs’ assistance for narrowly targeted groups of borrowers.
Option 2: Privatized system of housing finance with assistance from FHA, USDA and Department of Veterans’ Affairs for narrowly targeted groups of borrowers and a guarantee mechanism to scale up during times of crisis.
Option 3: Privatized system of housing finance with FHA, USDA and Department of Veterans’ Affairs assistance for low- and moderate-income borrowers and catastrophic reinsurance behind significant private capital.
Click here to read the full report or the Treasury press statement.
Reforming America's Housing Finance Market: A Report to Congress (PDF)
