Hours after The Washington Post published a story Tuesday detailing the Obama administration’s alleged plan to extend the government’s role in the mortgage market, the Treasury Department quickly rejected the notion and stressed continued devotion to installing private capital dominance in mortgage financing once again. But not all mortgage markets were soothed. The $4 billion Fannie Mae 5-year benchmark priced at over 35.5 basis points Wednesday morning. Jim Vogel, of FTN Financial said an extra half a basis point boost came from pricing in market shifts since the Post story ran. “The article made some waves, which helped bring the denials, with the thought a new direction in policy — perhaps after the 2012 elections — could perhaps preserve Fannie Mae and Freddie Mac under different names and a different set of capital requirements,” Vogel said in a note Wednesday. The Post said influential White House staff who pushed for a smaller government role in housing finance reform are gone. But Vogel said regardless of personnel or ideology shifts, the idea of private capital taking over the role of the government-sponsored enterprises is farther away than last year — when the Treasury was drafting its white paper. Treasury officials said they are sticking to the assertions put forth in the paper: Fannie and Freddie must be wound down and private capital must return. Satya Thallam, director of the financial markets working group at the George Mason University Mercatus Center, balked at the idea of preserving the status-quo for Fannie and Freddie. He voiced concerns that keeping them or even renaming them under a similar structure could inevitably lead to another bailout. So far, Fannie and Freddie owe the Treasury $142.2 billion in still compiling rescue funds. “We can’t simply wave our hands and say ‘we’re not going to bail you out again.’ Pretty much everyone in the Bush administration would’ve felt confident saying that prior to March 2008,” Thallam said. The Post story asserted Treasury officials wanted to preserve the role of the 30-year, fixed-rate mortgage, which Thallam said would remain without the government-sponsored enterprises. “This whole idea, for example, of the 30-year, fixed-rate-mortgage as the Holy Grail of mortgages just gets repeated without any consideration,” Thallam said. “A reasonable position to take is that absent explicit federal support for this type of product, it’ll still continue to exist but have a smaller market share.” Vogel pointed out that even if the Obama administration issued such a proposal, it would have a difficult time winding through a policy gridlock in Washington, leaving the only window for such action after the 2012 election. “The difficulty of turning policy wish lists into reality is not going to change soon. We look for more ideas to be floated from time to time as housing continues to weigh down consumer balance sheets,” Vogel said. Write to Jon Prior. Follow him on Twitter @JonAPrior
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