The Treasury released its long-awaited housing finance policy report Friday morning. Leaks suggested that the Obama administration would essentially punt on the question of what to do about the government's role in the mortgage market. That assessment was a little too strong. Instead, the plan did provide three options, but all were variations on a clear theme: the government's role in the housing market will be sharply reduced once a new policy is adopted.
The report (.pdf) begins with a narrative of how the government's involvement in the housing market played a role in the financial crisis. It stressed how the public-private nature of government-sponsored enterprises Fannie Mae and Freddie Mac was intrinsically flawed. It then asserted that these GSEs should be wound down over the next decade or so. This much is clear: under every option the Treasury outlines, Fannie and Freddie will eventually cease to exist.
With that said, however, the government's presence in the housing market will not disappear entirely. In fact, it would certainly remain intact for the affordable housing initiatives through the Federal Housing Authority and other targeted programs, as it had in the past. The big change would be how mortgage funding would be provided for the vast majority of mortgages in the U.S., which have heavily relied on Fannie and Freddie for decades. The Treasury wants the private market to step in and take on most of that funding responsibility and relieve taxpayers of some or almost all of the mortgage market's risk.