Fannie Mae and Freddie Mac replacements still uncertain, Treasury says
The Obama administration is still deciding how to replace seized housing giants Fannie Mae and Freddie Mac, a top Treasury official said Tuesday in denying a report that a proposal was in the works to continue a major government presence in financing mortgages.
Deputy Treasury Secretary Neal S. Wolin said administration officials continued to consider three options they laid out in February for scaling back the government's role in housing finance.
The Washington Post reported Tuesday that President Obama had directed a small team of advisors to develop a proposal to continue a major government presence in the housing finance market and possibly preserve Fannie and Freddie under different names.
Many analysts blame the the two companies for helping fuel the subprime housing boom -- including some who say Fannie and Freddie were the prime reason for the housing bubble. They were on the verge of failure because of the bad loans they had guaranteed when regulators seized them in 2008.
Since then, the federal government has pumped about $169 billion into the companies to keep them afloat.
Wolin said that in each of the three options, Fannie Mae and Freddie Mac would be "wound down on a responsible time line" and that the government's now-large role in housing finance would be reduced to a "limited and targeted" one. Administration officials and housing experts are concerned about making major changes too quickly because Fannie and Freddie are playing a key role in keeping the struggling housing market afloat.
"The Obama Administration believes that the private sector -– subject to strong oversight and consumer protection –- should be the dominant provider of mortgage credit," Wolin wrote in a blog post. "That’s why, in each of the three options we outlined in our report to Congress, the government's footprint in the housing finance market will shrink substantially."
Officials from Treasury, the Department of Housing and Urban Development and the White House continue to analyze the options.
They include one proposal for the government to almost completely leave the housing finance market, providing support only for low-income buyers. The other two options are less extreme pullbacks that still would significantly reduce the government's role to either provide a secondary guarantee for some mortgages or to step in only during a recession to provide an "emergency backstop" to the housing market.
Congress would have to enact the changes through legislation.
White House spokesman Matt Vogel said Obama's economic team has not recommended a specific option yet and the president hasn't made any decisions.
"All three options remain under active consideration, and we are deepening our analysis around how each would potentially be implemented," he said.
For the record, 1:02 p.m. Aug. 16: An earlier version of this post said that Obama administration officials were still considering the fate of Fannie Mae and Freddie Mac. The administration has determined that the companies should be closed, but is considering what would replace them.
-- Jim Puzzanghera
Photo: Fannie Mae and Freddie Mac headquarters. Credit: AFP / Getty Images