“WASHINGTON, April 23 (Reuters) – In considering how to fix the ailing U.S. housing market, Republicans and Democrats in Washington have found a rare point of agreement: they would prefer life without failed mortgage giants Fannie Mae and Freddie Mac.
But even with agreement that the system is broken, it is unlikely Congress will soon tackle the mammoth task of winding down two entities that have cost taxpayers more than $150 billion since their bailout in September 2008. Fannie and Freddie now support about 60 percent of all new U.S. home loans.
Already, lawmakers have taken tentative steps to scale back Fannie Mae and Freddie Mac’s involvement by reducing the size of loans that they can guarantee. Republicans and Democrats have unified behind preserving affordable homeownership.
But more dramatic actions could be politically treacherous in an election year. Home buyers still rely on the government backstop in nine of 10 new mortgages, and the fragile market must be weaned slowly from its dependence on federal programs providing financial backing.
Changing the present system might prove hard for lawmakers who are wary of risking harm to the housing recovery. Some would fear alienating the deep-pocketed housing lobby and various consumer groups rallying around the issue.
“There’s not a politician out there who is willing to take the risk of proposing something with a short transition period that would potentially be blamed for cratering the housing market,” said Douglas Elliott, a Brookings Institution fellow and former investment banker.
The Obama administration will release an updated plan in coming weeks that is expected to further define its goals for the federal government’s role in the housing finance system, according to sources familiar with the matter.
The administration in February 2011 offered three big-picture options for overhauling the mortgage market.
One would be to eliminate federal involvement altogether, but most experts say this could upend the housing market.
Another option creates a system that would help some types of low-income and veteran buyers and also provides an expanded guarantee the government would offer mostly in times of financial distress.
A third would include government reinsurance for some types of mortgages, but only if lenders first purchased a guarantee from a private insurer.
The administration has not endorsed a legislative plan at this point, but continues to consider these options, according to a U.S. Treasury official….”Comments »