Government Develops Plans to Pull Out of Fannie and Freddie

Government Develops Plans to Pull Out of Fannie and Freddie

On Friday the White House is expected to send three proposals to congress on how to best untangle the government from Fannie Mae and Freddie Mac. In the wake of the $150 billion bailout, the government, and therefore taxpayers, now own about 80% of the two companies.

The White House has been developing the strategies with careful scrutiny. While the administration is anxious to remove themselves from the two, they understand that it must be done carefully so as not to further injure an already fragile housing market.

As part of one strategy, appealing to many Republicans, Freddie Mac and Fannie Mae would be replaced by private enterprise. Additionally, the plan would not include the government backing currently in place.

Federal Reserve Chairman Ben S. Bernanke agrees with the removal of government backing up to a point. In a statement to the House Budget Committee, Bernake said, “If the government is involved in providing credit guarantees, it should do so only as a deep backstop…The first losses should be borne by the originators of the mortgages or by the securitizes.”

Under the remaining two proposals, the government would still back the system, but its financial responsibility would be scaled back substantially.