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Housing reform to scale back government influence

February 15, 2011 - The Obama administration's vision for the housing market's future includes less government involvement and fewer relocating families relying on federal loans for their home purchase.

In a proposal to Congress, the administration unveiled a plan to reduce and eventually eliminate Freddie Mac and Fannie Mae, while increasing the cost of government-backed loans through lower conforming limits and higher down payment requirements. In order to prevent buyers from relying on mortgages from the Federal Housing Administration as a substitute for Fannie or Freddie loans, the proposal also called for higher borrowing fees on FHA loans.

Ultimately, the proposal aims to turn lending over to the private sector - nine out of every 10 loans are backed by the government, said the report - while increasing consumer protections.

"This is a plan for fundamental reform - to wind down the GSEs, strengthen consumer protection, and preserve access to affordable housing for people who need it," said Treasury Secretary Tim Geithner. "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."

The Mortgage Bankers Association's Michael Fratantoni said he supports shifting lending to the private sector, adding that government guarantees should only be provided to the lowest-risk borrowers.
 

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