Anyone who hoped that taxpayers might be shielded from future losses will be sorely disappointed
The government just can't seem to let go of Fannie and Freddie. Huge accounting scandals didn't deaden their impact. Gigantic taxpayer losses, at $170 billion and counting, haven't taught Washington its lesson either. According to a new report, the Obama administration is considering keeping the firms around, though their mission might change a little. Unfortunately, the possible role that the article's sources describe doesn't sound like very substantial housing finance policy reform.
Here's Zachary A. Goldfarb of the Washington Post with the scoop from his White House sources:
President Obama has directed a small team of advisers to develop a proposal that would keep the government playing a major role in the nation's mortgage market, extending a federal loan subsidy for most home buyers, according to people familiar with the matter.
The decision follows the advice of his senior economic and housing advisers, who favor maintaining the government's role as an insurer of mortgages for most borrowers. The approach could even preserve Fannie Mae and Freddie Mac, the mortgage finance giants owned by the government, although under different names and with significant new constraints, said people knowledgeable about the discussions.
If you connect the dots here, then the Obama administration's proposal begins to take shape. We are told that the government would insure most mortgages. Of the Treasury's three policy alternatives offered back in February, only one could apply. That was the "catastrophic guarantee" option, where government agencies would sell a guarantee on most mortgages to investors. Those investors would face some first loss percentage and pay a premium for the catastrophic guarantee that the government provides. If Fannie and Freddie are kept around, then presumably they would be involved in creating these guarantees.