Treasury: No decision on government’s housing role yet

{mosads}The president reportedly backed a plan that would have Fannie, Freddie or some other firm charge a fee to guarantee mortgages, which in turn would fund an insurance pool to protect against losses on mortgage securities. The government would serve as a last-resort backstop that would step in amid another housing crisis only if the insurance pool was fully tapped.

In the Post story, a White House spokesperson rebutted the claims, saying the administration was still weighing three options it put forward back in February, all of which called for the ultimate dissolution of Fannie and Freddie. Wolin doubled down on that argument Tuesday.

He maintained that the White House was still weighing each of the three options, calling the assertion that the president has settled on a single way forward a “factual error.”

“In each of the three options we outlined in our report to Congress, the government’s footprint in the housing finance market will shrink substantially,” Wolin wrote on the blog. “That’s why, in each of the options, any government support for housing finance will be targeted and limited. This will help ensure that taxpayers are protected and the private sector bears the burden for losses.”

He acknowledged that Fannie and Freddie, which currently back roughly nine out of every 10 new mortgages, still play a “critical role” in supporting the “still-fragile housing market.” But he was adamant that the administration still ultimately wants to see the government-sponsored enterprises wound down.

Any plan to retain Fannie and Freddie would surely meet staunch opposition from Republicans, who have cast substantial blame on the institutions for the financial crisis, and pushed bills to eliminate them altogether.

In the administration’s housing report, the White House called for the winding down of Fannie and Freddie, but maintained that the government must play a role in the housing market by providing assistance to low- and middle-income borrowers.

But beyond those points, the administration has yet to publicly coalesce around a single plan, putting forward three options.

Under the first option, the “vast majority” of the nation’s housing would rest in private hands, except for government assistance targeted at specific groups, notably creditworthy low- and middle-income borrowers.

The second option would retain the government assistance for certain groups, but also would include a “backstop mechanism” whereby the government could step in to provide credit during a housing crisis. Absent extreme circumstances, the government would stay largely out of the housing market, as in the first option.

In the third choice, the government would still provide assistance to certain borrowers, but also would reinsure some private mortgage securities to help provide liquidity and bring down credit costs. Under that arrangement, a group of private mortgage guarantor companies that meet certain requirements would guarantee certain mortgage-backed securities, and the government would provide reinsurance. The government would pay out to shareholders of those securities if the private guarantors were wiped out.