Breaking News: Obama Administration Releases Plan to Wind Down Fannie and Freddie

By Kyle Chezum Updated on 2/11/2011

2/11/11

The Obama Administration released a plan today to significantly wind down the power and responsibility of Fannie Mae and Freddie Mac.  The goal of the plan?  Get more private capital into the mortgage marketplace by increasing the price of government mortgage assistance over time.  The gradual process, starting in 2013, should allow the housing industry to recover at a steady pace without placing any unexpected barriers in the path of the expected upturn.

This is a significant development.  Just two weeks ago, the White House was buying time and stalling on the issue.  The delivery of this report has sparked major discussions among economists and regulators about the future of the housing industry and where the mortgage market will end up.  Borrowing costs will climb higher as the plan ramps up, likely cutting off access to financing for many borrowers.

Some economists fear the plan could put too much power into the hands of major banks, resting the recovery on the shoulders of the large financial institutions.  Critics claim that the Administration is simply moving financial responsibility from the government sector to the private sector and not solving any of the underlying issues.  Supporter of the plan claim that it’s better to place the burden on willing investors than on taxpayers.  How investors will respond to the plan, though, is anybody’s guess.

Rep. Spencer Bachus (R., Ala.) released a statement today criticizing the plan’s lack of specificity.  "What the administration offered today isn't a plan to move us forward, but rather a collection of options to consider,” he said.  Bachus insisted that the nation needs a “real plan” and vowed to “sit down with administration officials to find common ground.”

Still, a majority of Republicans have expressed approval of the plan.  The Right has been pushing for GSE reform in the wake of the financial crisis for a long time, vying specifically for diminution or dissolution of the entities’ financial responsibilities.  Rep. Jeb Hensarling, (R., Texas) announced a month ago that he was developing a plan of his own to eliminate Fannie and Freddie in under five years.