Government free of Fannie and Freddie under GOP plan, but way forward hazy

The government's control of Fannie Mae and Freddie Mac would be eliminated under a new package of spending cuts unveiled by the House Republican Study Committee (RSC) Thursday, but it remains unclear what could replace the mortgage titans in the housing market.

The group said cutting the government-sponsored enterprises (GSEs) from the federal budget would save a total of $30 billion, as part of a $2.5 trillion set of spending cuts dubbed the Spending Reduction Act of 2011.

While Republicans touted the savings that would be reaped by getting the GSEs off the government's books, it remains to be seen how — or if — the private sector could fill the gap. Complicating matters is the fact that any GOP plan to turn Fannie and Freddie private would have to be approved by the Senate and signed by President Obama.

Asked by The Hill how the RSC plan can eliminate federal control of Fannie and Freddie without devastating the housing market, Chairman of the Financial Services Committee's subcommittee on Capital Markets and Government-Sponsored Enterprises and RSC member Scott Garrett (R-N.J.) said that the cut needs to come as part of a plan to get the private sector to step back into the housing market.

“First and foremost, what we need to do with Fannie and Freddie is to make sure that the American public is no longer on the hook going forward. We are already on the hook or out of pocket to the tune of $150 billion or a little less than that already. I was just meeting with some of the regulators, and their projections is that there will be more times when they will be coming back to you and I asking for more money to bail them out,” he said.

“Going forward, the private market has to step in to place to replace what they are doing,” he added.

The Treasury Department is expected to release a report by the end of the month detailing its plan for housing finance reform. Garrett said he wants the report to lay out a plan specifying how the GSEs will be put on budget and how the administration will “make sure we are not paying this money out in the future.”

Fixing how housing is done in the U.S. has been a calling card for Republicans, particularly in the House, for the last several years. During debates on the financial crisis, GOP members have repeatedly pointed the finger at the GSEs, which they say overreached to meet government pushes to increase home ownership while enjoying implicit governmental backing.

Housing finance reform has been identified as a top priority in 2011 and beyond by the Obama administration and both congressional parties. The administration has its study coming soon, and House Republicans, particularly Garrett and others high up on the House Financial Services Committee, have expressed an interest in tackling the topic early.

However, housing experts have said that figuring out what should replace the troubled GSEs, which back the vast majority of the nation's mortgages, is a major task that cannot be tackled quickly. The continued fragility of the ailing housing market also will slow progress on that front.