The fate of Freddie Mac and Fannie Mae will be center stage in January when the Obama administration makes its required Congressional recommendations about what to do about the two companies. The stakes for homeowners and the economy couldn’t be higher as the next Congressional session will determine if the U.S. has a private mortgage market or if, by controlling housing finance, government bureaucrats will be able to direct where Americans live and how much they pay for housing. While the administration is trying to figure out how much is too much government intervention in the housing finance markets, it doesn’t seem to be concerned with the underlying problems that shut down virtually all new issue volume in the private mortgage securities markets. As a result, administration proposals are doomed to fail until it acknowledges that radical mortgage finance reform is a prerequisite for the U.S. to break its dependency on Freddie Mac and Fannie Mae. Reform is needed to induce investors to buy newly issued non-government guaranteed mortgage backed securities.
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