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Should the Government Get Out of the Mortgage Industry?

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In recent years, even as the housing market has made significant strides to get out of the doldrums experienced immediately following the bubble burst, there has been significant discussion about scaling back federal involvement with two government-sponsored mortgage-backing enterprises. Now, a new plan for doing so is about to see the light of day.

A panel of experts convened by the Bipartisan Policy Center, which is made up of former secretaries of the U.S. Department of Housing and Urban Development and former members of the U.S. Senate, is about to release a plan by which it believes the federal government can scale back its involvement with Fannie Mae and Freddie Mac, according to a report from Bloomberg News. It says there is a necessity for doing so now, largely because of the amount of taxpayer dollars currently at risk in the market, particularly if there were to be another housing bubble burst.

Specifically, the panel’s recommendations include replacing Fannie and Freddie with mortgage-bond guarantees, the report said. Those will be effective only when private companies take on the existing government-sponsored organizations’ initial losses, and would be issued by a new federally-run entity that would back those bonds with loans insured by various federal agencies with a hand in the housing market.

However, while there has been discussion of how the federal government could best untangle itself from involvement with Fannie and Freddie, the ways to do so are often rather contentious, the report said. For instance, President Barack Obama has previously mentioned that he would like to see Fannie and Freddie wound down, but has no plan in place to actually do so. The same is true of lawmakers in Congress, who have not advanced a bill that would get the government out of the mortgage-backing business. However, the Federal Housing Finance Agency, which controls Fannie and Freddie, has its own plans, and these mainly involve increasing competition in the marketplace and sharing more risk with private companies.

The housing market has generally been improving, and often significantly, for more than a year now, and as such many consumers are seeing significant benefits in the past few months. Prices are rising even as affordability remains extremely high thanks to low interest rates, and these factors are bringing more buyers and sellers back into the market.

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