Fate of Fannie and Freddie Still Uncertain Despite Positive Housing Market Predictions

By Kyle Chezum Updated on 3/1/2011

Treasury Department officials have warned the Obama Administration that swift action taken to reform Fannie Mae and Freddie Mac may damage the mortgage market more than help it.  Suggestions for reform provided by the Treasury include a plan that’s akin to privatization of the mortgage giants, which may cripple investor stability in the overall mortgage marketplace.  Other plans, such as government-backed “catastrophe insurance” for the two organizations, don’t offer many additional benefits.

The Treasury insists that the government must use caution above all else.  Officials recommend a longer timeline for winding down Fannie and Freddie.  In addition, mortgage professionals expect the Federal Housing Administration to be scaled back in coming months as well.  Fees for FHA financing will likely increase significantly, making this source of government funds less appealing to borrowers.

To hear the Treasury tell it, the housing recovery is still a long way off.  But Warren Buffet thinks otherwise.  He expects the housing recovery to begin full-force within the year, and has stated that he’s willing to start spending billions of dollars owned by Berkshire Hathaway to help make the recovery a reality.  Buffet recommends a return to common sense underwriting standards, something his mortgage company never deviated from.

“A house can be a nightmare if the buyer's eyes are bigger than his wallet and if a lender, often protected by a government guarantee, facilitates his fantasy," Buffett said.  "Our country’s social goal should not be to put families into the house of their dreams, but rather to put them into a house they can afford."

Though financing is more difficult to obtain now than in previous decades, Buffet’s vision may not be too far afield of the coming reality.  A Freddie Mac report released on Monday shows that home prices fell 4.3% during the fourth quarter of 2010, continuing a trend that has been steady for the past several years.