Korene's Blog

For full disclosure, I need to say that the current administration and I view things very differently in a lot of areas and I am not a big fan of Mr. Obama's method or motives in government.

The Obama administration wants to raise fees for borrowers and require larger downpayments for home loans as part of a long-term effort to restructure the nation's housing market. But it warned that these measures could boost mortgage rates and lower the availability of the 30-year fixed rate mortgage, a mainstay of American home-buying for decades.

In a long-awaited white paper, the administration said it intends to wind down the federal mortgage giants Fannie Mae and Freddie Mac and curtail the Federal Housing Administration to help reduce the government's outsized role in mortgage funding.

The housing finance system, which has ensured that Americans can get home loans, came crashing down in the financial crisis, helping fuel millions of foreclosures and the recession.

But in proposing a strategy for the future, administration officials acknowledged they are walking a tightrope. Any steps that too dramatically dial back government support too dramatically -- making mortgages more expensive -- could extend the already protected housing decline.

Treasury Secretary Timothy Geithner said Friday morning that a new housing finance system without Fannie and Freddie could take seven years to put in place, suggesting it might fall in part to future administrations.

"We have to see the process of repair in the housing market completed," Geithner said in a conference call with reporters. "

The white paper focuses on a series of short steps to increase fees and downpayment requirements. The administration hopes these measures will allow banks to more effectively compete in offering loans without government guarantees.

The report offers three options for replacing Fannie and Freddie, rather than a single long-term vision for the housing finance system. By refusing to endorse one option, the administration may be able to avoid a contentious clash with Republicans, who view companies as the chief culprit in the financial crisis.

Republicans are likely to agree with the administration's plan to reduce taxpayer support for mortgages.

The options include creating a new government agency that would continue to insure mortgages or a new agency that would step in only during times of crisis. Each, however, could put taxpayers at more risk of having to bail out the mortgage market during big declines.

The most drastic option would end government backing for home loans beyond the FHA. But the administration warned that this measure could affect access to credit for many potential homeowners. This option could boost mortgage rates the most, the officials said, and it could make it harder for community banks to compete in the housing market.

In the short term, the administration suggested a range of new measures to make government-backed mortgage more expensive - helping private-sector firms to better compete in offering mortgages.

These include reducing the size of mortgages Fannie and Freddie may purchase, from $729,750 to $625,500, by this fall. It would phase out the companies' 10 percent downpayment requirement. And it would raise fees that the companies charge to insure loans.

The administration also suggested scaling back the FHA, which caters to first-time homebuyers with low downpayment options. The White House said it wants to reduce the size of loans that FHA can provide, increase fees by a quarter percentage point, and raise the downpayment requirement from 3.5 percent to 5 percent in the future.

The report also emphasized the importance of rental housing for low and moderate-income communities.

Senior administration officials said they would take gradual steps to avoid harming the already struggling housing market. But they said this plan laid the groundwork for the future of U.S. housing.

"This is a plan for fundamental reform - to wind down [Fannie and Freddie], strengthen consumer protection, and preserve access to affordable housing for people who need it," Geithner said. "We are going to start the process of reform now, but we are going to do it responsibly and carefully so that we support the recovery and the process of repair of the housing market."

Mark Zandi, chief economist for Moodys.com, told CNBC that the Obama administration had "laid out a prudent, appropriate plan."

"At the end of the day, though, the government is going to have to play some role in a catastrophic backstop," he said.

To my way of thinking it is just another government level and layer that hurts the consumer, the American public and put more employees on the government regulatory process but provide NO real benefit to the public at large.