Obama Administration Must Decide Soon How to Fix Housing Sector

By Kyle Chezum Updated on 3/14/2011

The Obama Administration faces a major decision.  Over the next few months, government leaders must come to terms with the mess that the housing sector is in and begin to implement suggested changes of some kind or another.  And that’s where the decision lies.

The administration recently released a white paper that laid out three plans to fix the housing market.  The plans primarily center around the involvement of Fannie Mae and Freddie Mac, the two housing giants, and the roles that these government agencies should play in the recovery.  Consensus among voters and stakeholders, though, appears far off.

The administration wants American citizens to purchase homes at affordable prices.  American citizens want the same thing.  But getting to this point may prove tricky.  The private market has mostly pulled out of the lending industry, and a dramatic decrease in home prices has locked up too much capital in underwater properties.  Five years ago, the government held 36% of residential mortgages through Fannie and Freddie.  Now, that number is well over 90%.

The decision that the Obama administration faces is whether to pursue a plan in which continued government involvement is leveraged to spur growth or a plan in which the government backs out almost entirely with the hope that private equity will fill the ensuing void.  Economists and homebuyers disagree, and this disagreement is making the decision a very difficult one indeed.