The Obama administration will propose a wind-down of government-controlled mortgage buyers Fannie Mae and Freddie Mac, according to documents obtained by Reuters.
The White House proposed three long-term options to reduce the government's role in the housing market and took several shorter term steps aimed at raising the cost of government-backed mortgages.
KEY POINTS: * Report recommends phasing in higher pricing for Fannie, Freddie to level even with private sector over several years * Obama admin official says no change to commitment to backstop Fannie, Freddie existing obligations
CHRIS RUPKEY, CHIEF FINANCIAL ECONOMIST, BANK OF TOKYO-MITSUBISHI UFJ, NEW YORK:
The Treasury has been warning about the risks from Fannie and Freddie ever since the late 1990s. The fact that they were undercapitalized during the height of the bursting of the housing bubble certainly helped to undermine and add to the general downturn in the market. Anything that gets this issue behind us would be a good thing.
One of the issues is that a lot foreign central banks have put money into Fannie and Freddie debt that allows them to operate, and you have to be very careful in fixing these institutions because they do have foreign central bank ownership. They have to tread cautiously, otherwise somebody else is going to have to fund them.
Their mission to supply funding to the housing sector of the economy, this is a good time to address this simply because the demand for new mortgages when you have housing starts down around 500,000 annual rate is much different than if you had housing starts around a million and a half annual rate.
NANCY VANDEN HOUTEN, SENIOR ANALYST, STONE & MCCARTHY, PRINCETON, NEW JERSEY:
The big overhaul to the housing finance system is going to take a long time and it's going to be influenced a lot by politics. I think in the end the three options -- there's kind of a big small and middle option and I doubt that we'll be left with something in which the government's role in the mortgage market disappears entirely.
There are certain things that can happen right away without congressional action, like raising the fees that the GSEs charge -- it seems like steps will be taken to reduce their involvement in the market now and I think that could be a little bit negative for the housing market as it's trying to recover.
LARRY MILSTEIN, HEAD OF GOVERNMENT AND AGENCY TRADING, R.W. PRESSPRICH & CO., NEW YORK:
Agency debt spreads are a little tighter. This announcement came as expected. The expectations coming in was a proposed wind-down of some kind with the GSEs. There will be a bias toward tighter spreads because of less in agency issuance. But this is going to take time.
JACK DEGAN, CHIEF INVESTMENT OFFICER, HARBOR ADVISORY CORP, PORTSMOUTH, NEW HAMPSHIRE:
They (the U.S. Treasury) didn't do anything to shock the market. They are outlining options that the Congress can choose from, and now throws the ball to the Congress. This array of options out there, it is giving a phasing period that the market can adjust to and when there is that phasing period, the
market can almost adjust to anything. I don't think this will have a negative impact on the market.
PAUL BALLEW, CHIEF ECONOMIST, NATIONWIDE INSURANCE, COLUMBUS, OHIO:
It's important for us to take the distortions out of the environment. What happened in housing was a series of distortions in the marketplace and Fannie and Freddie contributed to that, along with other activities.
It's healthy for us to take distortions out of the market because we don't want to go through this cycle again and again.
Housing's at or near bottom, if we're going to make changes, now's the time.