Page 2 of 2   <      

Obama report on Fannie, Freddie plan may boost mortgage rates

Video
The White House is going to propose a range of options to reform Fannie Mae, Freddie Mac and the mortgage market, which could cause changes to the face of American housing.

To many Republicans and the Obama administration, Fannie Mae and Freddie Mac, are ill. But rather than healing them, both sides agree that the companies should be left to die and that their support for the housing market should wither away.

Some influential interest groups are taking issue with that surprising bipartisan consensus. They include small banks, real estate agents and consumer groups, who all say that Fannie and Freddie, or something similar, are crucial for sustaining the struggling housing market.

"The administration today has laid out a series of options that could lead to the abandonment of a nearly 70-year commitment to affordable homeownership by working American families," Barry Zigas, director of housing policy for Consumer Federation of America, said in a statement. "American consumers need policies that will foster affordable, long-term fixed rate mortgages, as well as a stable supply of capital that will be available to lenders of all sizes, including community banks and credit unions."

In the short term, the administration suggested a range of new measures to make government-backed mortgage more expensive - helping private-sector firms to better compete in offering mortgages.

These include reducing the size of mortgages Fannie and Freddie may purchase, from $729,750 to $625,500, by this fall. It would phase out the companies' 10 percent down-payment requirement. And it would raise fees that the companies charge to insure loans.

The administration also suggested scaling back the FHA, which caters to first-time home buyers with low down-payment options. The White House said it wants to reduce the size of loans that FHA can provide, increase fees by a quarter percentage point, and raise the down-payment requirement from 3.5 percent to 5 percent in the future.

The report emphasized the importance of rental housing for low and moderate-income communities.

John Taylor, president of the National Community Reinvestment Coalition, said his group supports the effort to expand affordable rental housing, but he feared the plan's effect on working-class home buyers who couldn't afford the higher upfront costs.

"There is universal agreement with the principle that people who cannot afford homeownership shouldn't be put in an unsustainable loan," Taylor said in a statement. "However, the administration's proposal may be overly narrowing the window of opportunity for many blue-collar and low- and moderate-income people from realizing their dream of homeownership."

Senior administration officials said they would take gradual steps to avoid harming the already struggling housing market. But they said the plan laid the groundwork for the future of U.S. housing.

"This is a plan for fundamental reform - to wind down [Fannie and Freddie], strengthen consumer protection, and preserve access to affordable housing for people who need it," Geithner said. "We are going to start the process of reform now, but we are going to do it responsibly and carefully so that we support the recovery and the process of repair of the housing market."

Mark Zandi, chief economist for Moodys.com, told CNBC that the Obama administration had "laid out a prudent, appropriate plan."

"At the end of the day, though, the government is going to have to play some role in a catastrophic backstop," he said.

Geithner agreed Friday, saying that whatever path lawmakers choose for Fannie and Freddie, there must in the future be "some capacity for the government to step in and protect the economy from the collateral damage that can come from that sort of crushing deleveraging, big withdrawal of private capital that happens in crises. But of course, doing that is terribly difficult."

goldfarbz@washpost.com dennisb@washpost.com


<       2

© 2011 The Washington Post Company