Senate Majority Leader Harry Reid (D-Nev.) has broken with the president on the plan to dismantle mortgage giants Fannie Mae and Freddie Mac.
President Obama supports a Senate bill introduced by Bob Corker (R-Tenn.) and Mark Warner (D-Va.) that would replace Fannie Mae and Freddie Mac with a new government insurer as part of a new mortgage system in which private capital would be required to take at least 10 percent of first losses on mortgage securities before the government stepped in.
“The president just a few days ago said we’re going to have to take a look at Fannie and Freddie,” Reid said in a recent interview with Nevada Public Radio. “These are the government organizations that have made homeownership so easy. I don’t agree with the president. He says he wants to get rid of them. I think we better (be) very, very careful doing that. And I’m going to look closely at his recommendations because on their face, I don’t like them.”
House Republicans, meanwhile, want to dismantle Fannie and Freddie without providing any replacement. A bill that would essentially privatize home finance entirely, the Protecting American Taxpayers and Homeowners (PATH) Act, passed the Financial Services Committee in July without Democratic support.
“It doesn't matter if it's Fannie Mae and Freddie Mac or a new entity that serves a similar function -- if the government is providing that backing it will crowd out the private sector and again put taxpayers on the hook for Washington's failed policies,” Republicans stated in an Aug. 7 blog on the committee’s website. “That is not reform -- it's the status quo with new packaging.”
Meanwhile, some experts are predicting that if Fannie and Freddie get the axe, homeowners will pay more, regardless of which plan wins the day.Mark Zandi, chief economist for Moody’s Analytics, told USA Today Aug. 7that as private investors shoulder more of the risk, they’ll likely spread at least a little of the pain to consumers.
“It will mean higher mortgage rates,” Zandi said. “The question is how much higher.”