ORLANDO – Republicans are calling on Washington to begin winding down mortgage finance giants Fannie Mae and Freddie Mac, the first step in a longer-term plan to get the federal government out of the housing business.
At a financial conference here Monday, Republicans unveiled a four-point outline of how they want to overhaul the nation’s troubled mortgage system, including shrinking the number of mortgages owned by the troubled companies. The announcement comes only days before the Obama administration is expected to issue its own strategy on federally sponsored mortgages.
Rep. Scott Garrett (R-N.J.), chairman of the House Financial Services subcommittee on housing finance, says the government must take immediate steps to curtail Fannie Mae and Freddie Mac and to craft a longer-term plan to privatize the nation’s mortgage market.
“I am firmly committed to a purely private U.S. mortgage market over time – free of government guarantees and subsidies,” Garrett said at the American Securitization Forum. “I realize that this will not be an easy or immediate goal, but it is one I feel strongly about.”
Garrett spelled out four steps to shrink Fannie and Freddie, including decreasing the amount of mortgages they own and reducing the size of those they guarantee. He also called for bringing Fannie and Freddie, which are shareholder-owned corporations despite taxpayer backing, onto the federal balance sheet. Finally, he said, the companies’ government-instituted spending on affordable housing should end.
This week, the Obama administration is expected to release a report discussing its own options for the future of Fannie and Freddie, including how to reduce the federal government’s outsized role in funding and guaranteeing new home loans.
The two plans address one of the prime causes of the financial crisis — a breakdown in the system that secures loans for home buyers. The 2008 collapse and government rescue of Fannie Mae and Freddie Mac, which sit at the heart of that system, has cost taxpayers more than $130 billion.
The administration has said little about its plan. But sources told The Washington Post last week that it is likely to recommend modest but swift measures to curtail government support. Like the Republican proposal, the administration probably will call for reducing the size of mortgages that Fannie and Freddie can guarantee.
But the White House is unlikely to support a move to stop Fannie and Freddie from selling mortgages, because that could disrupt the recovery of the financial system by reducing the value of home loans owned by both banks and by the Treasury Department and Federal Reserve. It’s also expected to oppose listing Fannie and Freddie in the federal budget.
The administration’s plan will offer short-term steps and also address options for a long-term overhaul. The administration is divided over the degree to which the government should continue to play an outsized role in supporting housing.
But Garrett made clear he will focus on pulling back government support.
“While there are a wide variety of positions on the future of housing finance,” Garrett said, “two things everyone can agree on is that having the federal government continue to underwrite 95 percent of our nation’s mortgage market and having the [Federal Housing Administration] specifically insure 50 percent of new originations is completely unsustainable.”
By Zachary A. Goldfarb