The Obama administration is laying out three broad options for overhauling the mortgage lending system, but will let Congress make the final decision. The Treasury Department says in a report released today that the government should withdraw its support for the mortgage market slowly, over five years or more. The report describes a path for winding down the troubled mortgage giants Fannie Mae and Freddie Mac. The three options are: end the government’s role in guaranteeing most mortgages; support the mortgage market only in times of stress; or provide a government guarantee for mortgage investments created by private companies.
Under any scenario, the private sector will assume a greater role in housing finance as the government scales back its involvement. The government currently owns or guarantees more than 90% of U.S. mortgages. The bailouts of Fannie and Freddie have cost taxpayers nearly $150 billion.
The report comes after years of debate about how to end the government’s role in housing. The options have been discussed for years as well. By handing the decision to Congress, the administration sidesteps one of the most complex and politically explosive questions facing the financial system. Any of the three options will almost certain force mortgage rates to rise.
