Nobody is happy with the status quo. The federal government routinely guarantees 85% or more of newly issued residential mortgages, primarily through Fannie, Freddie, and the Federal Housing Administration (FHA). But withdrawing that support is impossible while the housing market is so fragile. The Treasury is scheduled to release a proposal for overhauling America’s housing-finance system as early as next week. But rather than resolve the status of Fannie and Freddie, it is likely to lay out several options, none of which is likely to become law any time soon.
The role of the FHA, which is to guarantee mortgages with low downpayments to families of modest means in return for a fee, is relatively uncontroversial. The big debate is to what extent the federal government should also guarantee mortgages to middle-class families. The Treasury’s options will include doing so through a stand-alone federal agency—perhaps a nationalised version of Fannie or Freddie—or by selling an explicit government guarantee for a fee to any lender, much as the Federal Deposit Insurance Corporation charges banks to insure their deposits.
I guess time will tell what options there are, if any in the near future at least.
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