The moment is finally here. Two and a half years after the government took over Fannie Mae and Freddie Mac, putting taxpayer money behind the guarantees of the institution to bail them out, the Treasury department and administration are suggesting how we might get rid of the GSEs. Well, sort of.
The plan released today is actually three plans, or proposals. Each of the options aim at reducing the government's role in housing finance, and while I haven't read through the whole plan yet (I will by this afternoon), it appears that most of what is in this report lines up with the leaks over the past few days.
Option 1 would be a federal reinsurance program, option 2 would be limited backstop targeting the "tail risk" of waves of defaults in a crisis, and option 3 would reduce government support for mortgages to just FHA, and presumably a more narrow segment of the market.
In principle, the less government support of mortgages the better because it means less distortion in the marketplace. I will have a full analysis of the report by the end of this weekend (so look for it Monday). In the meantime, we have recently published a few things that address this plan indirectly.
- The Treasury's plan includes various proposals for a guarantee, well here are 10 reasons why a federal guarantee would actually hurt borrowers more than help them.
- The Treasury's plan proposes lowering conforming loan limits, raising guarantee fees, and increasing down payments. All of these I also suggested earlier this week in testimony before the House Subcommitee on Capital Markets and GSEs, which you can watch here.
- The crux of the issue is whether homeownership should be supported as a social policy goal by the government. Last fall I wrote that we need to rethink homeownership, and that will help set our course for the proper public policy.