Treasury housing plan could seek to reduce role of Fannie and Freddie

U.S. Treasury Secretary Timothy Geithner will present Congress with three options for reducing the government’s role in the nation’s housing finance system and minimizing the influence of mortgage companies Fannie Mae and Freddie Mac, people familiar with the plan told Bloomberg News. Geithner will release the proposal as soon as Friday, with one plan calling for the elimination of Fannie and Freddie and their government-backed guarantee of mortgages. Under the Dodd-Frank financial regulatory overhaul enacted last July, the administration was required to submit a plan for ending taxpayer support for Fannie and Freddie. The government took control of the companies in September 2008 and has since taken more than $150 billion from the Treasury to cover losses linked to subprime mortgages.

The administration will also offer options for change without proposing legislation, but rather presenting a way to draw private funds back into the housing finance market and reduce the government’s role in insuring mortgage-backed bonds. Ideas for gaining private capital may include increasing the insurance premiums charged by Fannie and Freddie and forcing them to shed loans in their nearly $1.5 trillion portfolios, sources told Bloomberg. The administration also may suggest reducing the size of loans that the government-sponsored enterprises can insure. President Barack Obama met with Geithner and other top aides at the White House yesterday to put final touches on the proposal. [Bloomberg]