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February 10th, 2011

Treasury’s reform proposal for Fannie, Freddie could arrive Friday

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Treasury Dollar BillOpinions on what to do with Fannie Mae and Freddie Mac run a range from eliminating them swiftly and entirely, to gradually reducing their lending power and influence over the entire mortgage market.

On Wednesday, House Republicans held a hearing to debate the future of the GSEs ahead of the Treasury’s proposal, which is now expected as early as Friday. While there are conflicting opinions in terms of how Fannie and Freddie should be dealt with, I think everyone agrees that they need to be dealt with. I believe we can expect to see at least two major reforms that everyone can agree on:

  1. According to multiple sources, the first and most-agreed-upon change will come in the form of reducing Fannie and Freddie’s lending amounts — something I said needed to happen last year when the higher loan limits were set to expire.
  2. I think the second will come in some form of added taxpayer protection. Fannie and Freddie’s current role in the mortgage market is so immense — “Together with federal agencies, Fannie and Freddie have accounted for nine of 10 new loan originations in the past year,” writes Nick Timiraos of the Wall Street Journal — they need to yield to the private market to, above all else, limit taxpayer liability.

For a more detailed breakdown of the plans/ideas from those who testified at Wednesday’s hearing, be sure to review this article from Mortgage News Daily.

As we mentioned, the word is that the Treasury will unveil its concepts for dealing with Fannie and Freddie as early as tomorrow. According to what certain sources have told the Wall Street Journal, the Treasury is expected to release multiple strategies for reforming the GSEs.

That’s a good thing in my opinion.

Coming to the table with more than one option not only lessens the potential backlash of opposing counterpoints, but I think it shows that the White House isn’t exactly sure what the best move actually is, and that it’s going to take considerable debate to choose the proper plan of action.

All that said, I’m not really expecting the Treasury’s proposals to be overly in-depth.

Sure we’ll likely hear in some form or another that loan limits should be scaled back, that taxpayers need greater protection, and that the cost implications for shrinking Fannie and Freddie’s role in the market will come at a greater cost to consumers, but honestly, I believe the Treasury will go out of its way not to get this wrong.

For some time now HSH.com’s VP Keith Gumbinger has said the real GSE reform, not just the formulation of ideas and strategies, will be ultimately kicked down the road for the next administration to deal with. With all eyes watching, and with so many diverging opinions, it will be interesting to see what the Treasury comes forth with and when.

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One Response to “Treasury’s reform proposal for Fannie, Freddie could arrive Friday”

  1. Tweets that mention Treasury’s reform proposal for Fannie, Freddie could arrive Friday | HSH Financial News Blog -- Topsy.com Says: February 10th, 2011 at 8:03 pm

    [...] This post was mentioned on Twitter by Mortgage News, Roberto Mazzoni. Roberto Mazzoni said: Treasury’s reform proposal for Fannie, Freddie could arrive Friday: Opinions on what to do with Fannie Mae and F… http://bit.ly/eFqtdt [...]

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HSH.com's daily blog focuses on the latest developments in the mortgage and housing markets. Our mission is to relate how changes in mortgage rates and housing policy, as well as the latest financial news, impacts consumers, homebuyers and industry insiders alike. Our 30-plus years of experience in the mortgage industry gives us an edge as we break down the latest changes in an ever-changing market.

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Tim Manni

Tim Manni is the Managing Editor of HSH.com and the author of their daily blog, which concentrates on the latest developments in the mortgage and housing markets.

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