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Obama Offers Three Options for Housing Overhaul Plan


The Obama administration offered three long-term overhauling options to the housing finance system in United States on Friday. The alternatives were written in the 31-page “white paper” that aims to unwind the dominance of Fannie Mae and Freddie Mac in the mortgage market.

The paper also consists of short-term propositions to gradually lessen the role of the government in the housing market so that private sectors can step in. By increasing the bills charged, it separately supports a slow unwind of the two firms.

The private market has been on its back for several years. The overhaul does not only try to level the field between the government and private sectors, but it also tries to reduce the large loan portfolio taken by Fannie and Freddie.

The most drastic of the three options proposed by the administration would be to privatize the housing finance giants. This leaves the market almost entirely to the private division.

It offers government insurance, as well as guarantees limited to the Federal Housing Administration. It also includes other programs for borrowers with low to middle income.

The second alternative includes adding a backstop mechanism within the government to be utilized only when there is a crisis. The third option involves creating government reinsurance for certain types of mortgage loans.

U.S House of Representatives newly authorized Republicans, as well as Democrats in the Senate have to reach an agreement regarding which option to follow.

Policymakers have purposely deferred decisions on what actions to perform about Fannie Mae and Freddie Marc as the housing market in United States remains fragile. The administration placed the pressure to the Republicans to perform the next move.

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