Friday, February 11, 2011

White House proposes winding down Fannie, Freddie - Washington Times

White House proposes winding down Fannie, Freddie - Washington Times: "The Obama administration Friday morning endorsed a very gradual phasing-down of the enormous role Fannie Mae and Freddie Mac now play in the housing market, taking a first step by reducing the size of loans they can guarantee.

The plan would allow the limit on loans to fall from the current level of $729,000 in major cities like Washington to $625,000 on Oct 1, as scheduled under current law. The limit on loans that can be insured by the Federal Housing Administration (FHA) would drop to the same level. The plan would also phase in a requirement that homebuyers supply at least a 10 percent downpayment on all loans backed by Fannie and Freddie.

To begin easing Fannie and Freddie out of the near-exclusive role they play in providing the funds for prime mortgages, the plan would also increase the amount the two mortgage giants charge for their guarantee. That will make mortgages more expensive, but also enable more private banks to step in and provide financing without having to compete with the cheaper alternative available from Fannie and Freddie."

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