Throughout the transition, we remain committed to ensuring that Fannie Mae and Freddie Mac have sufficient capital to perform under any guarantees issued now or in the future and the ability to meet any of their debt obligations.  This assurance is essential to continued economic stability.       
 
We recognize the critically important role that Fannie Mae and Freddie Mac and their employees have played in the housing finance market while they have operated in conservatorship. We look forward to continuing to work with them to find ways to develop and implement the longer term reform solutions that the Administration determines together with Congress.
 
2. Fix the Fundamental Flaws in the Mortgage Market.  The Obama Administration is committed to fixing the fundamental flaws in the housing finance chain.  That process is already underway as we move to fundamentally transform the mortgage market through the Dodd-Frank Wall Street Reform and Consumer Protection Act’s (Dodd-Frank Act’s) critical reforms.  Implementing these key measures, as well as additional reforms outlined in this report, will help to strengthen the long-term health of the mortgage market for borrowers, lenders, and investors.</p<ul

 
3. Better Target the Government’s Support for Affordable Housing.  The Administration believes that we must continue to help ensure that Americans have access to quality housing they can afford.  This does not mean, however, that our goal is for all Americans to become homeowners.  Instead, we should make sure opportunities are available for all Americans who have the credit history, financial capacity, and desire to own a home have the opportunity to take that step.   At the same time, we should ensure that there are a range of affordable options for the millions of Americans who rent, whether they do so by choice or financial necessity.  Moving forward, we must design access and affordability policies that are better targeted and focused on providing support that is financially sustainable for families and communities.  The Administration recommends initially focusing our efforts on four primary areas:</p<ul

4. Longer-Term Reform Choices.  The report also puts forward longer-term reform choices for structuring the government’s future role in the housing market.  Each of these options would produce a market where the private sector plays the dominant role in providing mortgage credit and bears the burden for losses, but each also has unique advantages and disadvantages that we must consider carefully. </p

Deciding the best way forward will require an honest discussion with Congress and other stakeholders about the appropriate role of government over the longer term.  The Obama Administration looks forward to working to build consensus, on a bipartisan basis, with a wide range of stakeholders on this issue.  </p

THE THREE OPTIONS…</p

Option 1: Privatized system of housing finance with the government insurance role limited to FHA, USDA and Department of Veterans’ Affairs’ assistance for narrowly targeted groups of borrowers</p

This option would dramatically reduce the government’s role in insuring or guaranteeing mortgages, limiting it to FHA and other programs targeted to creditworthy lower- and moderate income borrowers. While the government would continue to provide access for this targeted segment of borrowers, it would leave the vast majority of the mortgage market to the private sector.

Option 2: Privatized system of housing finance with assistance from FHA, USDA and Department of Veterans’ Affairs for narrowly targeted groups of borrowers and a guarantee mechanism to scale up during times of crisis</p

As in the option above, FHA and other narrowly targeted programs would provide access to mortgage credit for low- and moderate-income borrowers, but the government’s overall role in the housing finance system would be dramatically reduced. In this option, however, the government would also develop a backstop mechanism to ensure access to credit during a housing crisis.

Option 3: Privatized system of housing finance with FHA, USDA and Department of Veterans’ Affairs assistance for low- and moderate-income borrowers and catastrophic reinsurance behind significant private capital</p

Under this option, as in the previous options, the mortgage market outside of the FHA and other  federal agency guarantee programs would be driven by private investment decisions with private capital taking the primary credit risk. However, to increase the liquidity in the mortgage market and access to mortgages for creditworthy Americans – as well as to ensure the government’s ability to respond to future crises – the government would offer reinsurance for the securities of a targeted range of mortgages.</p

FULL REPORT</p

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The MBA was quick to respond….</p

WASHINGTON, D.C. (February 11, 2011) – Michael D. Berman, CMB, Chairman of the Mortgage Bankers Association (MBA), today issued the following statement in response to the Obama Administration’s release of a white paper outlining potential approaches to reforming the government’s role in the secondary mortgage market.

“Today is another important milestone on the road to stabilizing the mortgage market.  By putting forth its white paper, the Obama administration joins Congress, the industry and other stakeholders in advancing the dialog on the proper role of the government in the real estate finance markets.

“We are gratified to see that one of the concepts they articulate closely tracks MBA’s proposal, released eighteen months ago, that visualizes a workable, commonsense system driven by private capital.  Our proposal envisions an explicit, but limited, government guarantee of lower-risk mortgage-backed securities.  The guarantee would be paid for by fees used to build a fund to protect taxpayers.  We continue to believe that this is the most prudent approach, one that places the primary risk on private investors and ensures sufficient liquidity during times of economic stress in order to provide affordable mortgage finance in all types of mortgage markets.  Our proposal directly addresses the problems that caused the failure of the Fannie Mae/Freddie Mac system.

“We look forward to working with legislators, the administration and other stakeholders to evaluate the different proposals on restructuring the market without dramatically increasing the cost of credit, and thoughtfully working through the important transition issues facing the current government sponsored entities (GSEs).  The sooner we can resolve these important issues, the sooner we can restore stability and confidence to the mortgage and housing markets.”</p

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