Fannie and Freddie phase-out plan due

By Ben Rooney, staff reporter


NEW YORK (CNNMoney) -- The Obama administration will issue a proposal later this week recommending the gradual elimination of government-sponsored mortgage backers Fannie Mae and Freddie Mac, a White House official said Wednesday.

The highly-anticipated "white paper," which is expected to be released Friday, will include three different options for reducing the role government plays in the mortgage market, the official said.

While the paper would mark an important development in the debate over what to do with Fannie and Freddie, a final decision by Congress is not expected any time soon.

After being rescued by the government in 2008, Fannie and Freddie have presented a major conundrum for policymakers in Washington.

The problem is that phasing out the two publicly traded companies could raise borrowing costs for homeowners and jeopardize the fragile housing market.

At the same time, Fannie and Freddie represent a major liability for taxpayers, who are on the hook for about $150 billion in federal aid the two institutions have received.

The issue has become politically charged, with some Republicans blaming Fannie and Freddie for contributing to the recent housing bubble. Democrats argue that the institutions help promote home ownership, especially among low- and middle-income Americans.

Given the political challenges involved and the threat to the housing market, any winding-down of Fannie and Freddie is likely to take place over a period of years.

A representative for Fannie Mae declined comment. Freddie Mac representatives did not immediately respond to a request for comment.

The three options in the administration's white paper were outlined in published reports Wednesday.

The most conservative of the three options would involve no government role in the mortgage market beyond existing federal agencies, such as the Federal Housing Administration, according to the Wall Street Journal.

The two other options relate to the government's place in the secondary mortgage market, previously filled by Fannie and Freddie. Under one option, the government would backstop mortgages during times of "market stress," while the other recommends that the government be involved at all times.

In addition, officials could also reduce the maximum loan limit for mortgages that Fannie and Freddie are allowed to buy, and encourage them to raise the fees they charge banks to guarantee mortgages.

Other options that could be discussed in the white paper are gradual increases in the minimum down payments on government-backed loans, and an accelerated reduction in Fannie and Freddie's loan portfolios.

-- CNN's senior White House correspondent Ed Henry contributed to this report. To top of page

Frontline troops push for solar energy
The U.S. Marines are testing renewable energy technologies like solar to reduce costs and casualties associated with fossil fuels. Play
25 Best Places to find rich singles
Looking for Mr. or Ms. Moneybags? Hunt down the perfect mate in these wealthy cities, which are brimming with unattached professionals. More
Fun festivals: Twins to mustard to pirates!
You'll see double in Twinsburg, Ohio, and Ketchup lovers should beware in Middleton, WI. Here's some of the best and strangest town festivals. Play
Index Last Change % Change
Dow 17,042.90 0.00 0.00%
Nasdaq 4,493.39 0.00 0.00%
S&P 500 1,972.29 0.00 0.00%
Treasuries 2.51 0.02 0.68%
Data as of Sep 30
Company Price Change % Change
Ford Motor Co 14.79 -0.32 -2.12%
Bank of America Corp... 17.05 0.04 0.24%
eBay Inc 56.63 3.97 7.54%
Apple Inc 100.75 0.64 0.64%
General Electric Co 25.62 0.20 0.79%
Data as of Sep 30

Sections

CNNMoney's Italian-American investing correspondents did a taste test of Olive Garden's food. They agree with hedge fund Starboard: It's not very appetizing. More

Even limited air operations could cost up to $4 billion a year, says a think tank, while large ground forces could cost $1.8 billion a month. More

Pro-democracy protesters in Hong Kong are using FireChat to improve communication and organize. More

On Wednesday, 17% of First Green Bank's 66 employees will get a raise under the company's new "living wage" program. The guarantee: At least about $30,000 a year. More

This mom of four only makes $29,000 a year and is losing $400 a month because the state is garnishing her paycheck over a debt. Now she is about to be evicted from her apartment. More

Market indexes are shown in real time, except for the DJIA, which is delayed by two minutes. All times are ET. Disclaimer Morningstar: © 2014 Morningstar, Inc. All Rights Reserved. Disclaimer The Dow Jones IndexesSM are proprietary to and distributed by Dow Jones & Company, Inc. and have been licensed for use. All content of the Dow Jones IndexesSM © 2014 is proprietary to Dow Jones & Company, Inc. Chicago Mercantile Association. The market data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved. FactSet Research Systems Inc. 2014. All rights reserved. Most stock quote data provided by BATS.