Report: Eliminate Freddie, Fannie and increase private involvement in housing

By Vicki Needham - 02/25/13 04:29 PM ET

A new housing report is calling for the elimination of Fannie Mae and Freddie Mac as part of a winding down of the federal government's involvement in the mortgage finance business.

The report, released on Monday by the Bipartisan Policy Center (BPC), proposes a multi-pronged plan to modernize the housing sector by expanding private capital in the mortgage market, with a continued but limited role for the federal government, an overhaul of the Federal Housing Administration (FHA) and improvements to rental assistance programs.

Sen. Bob Corker (R-Tenn.), a member of the Senate Banking, Housing and Urban Affairs Committee, credited the proposal for focusing on how to move forward with scaling back the involvement of government-sponsored enterprises Fannie and Freddie, which guarantee more than $5 trillion of the nation's mortgages.

"It appears to be headed in the right direction by putting substantial private capital in front of the government and resolving the legal limbo of the GSEs," Corker said. "I thank them for their contribution to the conversation, and I hope we get serious and long-term reform this year."

In the last Congress, Corker introduced legislation to unwind Fannie and Freddie.

Sixteen months in the making, the report provides a blueprint for how private-sector financing will play a greater role in bearing credit risk and providing mortgage funding while ramping up taxpayer protections.

"The report is a strong one, which I believe charts a course for a much-needed return of the private market to housing finance. It also states where government involvement is needed — it is explicit, paid for and limited," said Frank Keating, American Banking Association president and CEO, who is a member of the group.

The plan also reworks how federal rental subsidies are distributed by focusing on the nation’s most vulnerable households and rewarding providers who demonstrate strong results at the state and local levels with increased flexibility in program administration.

"We are pleased that the Commission recognizes that private capital must play a larger role in any future housing finance system, and that there is a role for clearly defined government involvement in housing,” said John Dalton, president of the Financial Services Roundtable's Housing Policy Council (HPC).

"Gaining perspective from a diverse group of housing market stakeholders, including the Housing Policy Council, is an appropriate step toward comprehensive reform of the secondary mortgage market," Dalton said.

The proposal calls on preserving and expanding the Low Income Housing Tax Credit program to increase the supply of affordable rental housing.

For first-time home buyers, the report suggests housing counseling to prepare for homeownership.

The report highlights the challenges and opportunities for housing providers amid the growing senior population, that will help seniors "age in place" and integrate housing with healthcare and other programs.

For the one-third of people who live in rural areas, the commission recommends continued support for homeownership and rental assistance in those communities.

The BPC launched the Housing Commission in October 2011 to develop a new vision for federal housing policy led by former Senate Majority Leader George Mitchell (D-Maine), former Sen. Kit Bond (R-Mo.), former Sen. and HUD Secretary Mel Martinez (R-Fla.) and former HUD Secretary Henry Cisneros, and includes 17 others.