The industry is abuzz with news that the federal government could unveil its proposal for overhauling Fannie Mae and Freddie Mac as early as Friday. The GSEs haven’t had a profitable quarter in over three and a half years and were placed under government control in 2008 to avert their collapse. Since then, Treasury has pumped more than $150 billion into the two GSEs and cries for their reform have grown louder. The forthcoming proposal is expected to lay out three recommendations that call for phasing out the nation’s two largest housing-finance companies.
According to a Bloomberg report, one option is likely to be a complete government withdrawal from the mortgage-guarantee business now dominated by the GSEs. Reuters says the government’s revamp will give the private sector a dominant role in the housing market and reduce the government’s support to below 50 percent within five to seven years after the plan is adopted. Bloomberg says a second option would phase out the government’s guarantee of mortgage-backed securities (MBS) and put private firms in the driver’s seat, with the government stepping in only in the event of a market failure, while the third option would be a far less dramatic reduction of government support that more closely resembles the current system.