The White House will propose a path to wind down and eventually eliminate Fannie Mae and Freddie Mac and specify a range of options to replace the mortgage companies that have played a central role in the housing market for decades, according to people familiar with the matter.
The Obama administration is due to release its proposal for the future of the nation’s $10.6 trillion mortgage market as soon as Friday, outlining steps to gradually reduce the government footprint in the mortgage market. Together with federal agencies, Fannie and Freddie have accounted for nine of 10 new loan originations in the past year.
The administration is likely to outline three proposals, assessing the merits and drawbacks of each. The most conservative would recommend that the government play no role in the mortgage market beyond existing federal agencies.
Two others would create a way for the government to backstop part of the secondary mortgage market, a role long filled by Fannie and Freddie. Under one, that government backstop would kick in primarily during periods of market stress; under the other, the government would play a role at all times.
Steps to reduce the federal role would likely increase home buyers’ borrowing costs, adding pressure to still-fragile housing markets. Consequently, analysts believe any transition could take years and would be increasingly driven by the pace of the housing market’s recovery.