The Obama administration is planning to encourage private capital back to the mortgage market by scaling down government guarantees even if Congress fails to pass housing finance reform, according to people familiar with the so-called Plan B for the mortgage market.
The Treasury is due to deliver plans for comprehensive reform in January but officials are already preparing to sidestep what is likely to be a long and bitter battle in Congress over the future of Fannie Mae and Freddie Mac, the government-owned companies that now guarantee more than 90 per cent of all new mortgages.
Officials would like to see a reduction in the maximum size of loans guaranteed by Fannie and Freddie to gradually refocus government support on first-time and lower-income buyers.
Congress voted to maintain the “conforming limit” at up to $729,750 in high-cost areas such as New York and San Francisco until October.Even without a vote in Congress officials could direct Fannie and Freddie to charge more to guarantee loans, making themselves less competitive.