Obama administration wants to keep feds in mortgage business

The Obama administration believes that in order to right the ship of the housing market, the federal government is going to have to stay actively involved.

The Washington Post reports Tuesday morning:

The government could maintain a substantial role in various ways. These include restructuring Fannie and Freddie as public utilities overseen by a government regulator. The government would no longer guarantee their financial health, as in the past, but would continue to backstop the mortgage-backed securities they issue using loans made by private banks.

Or the two companies could be shut down and replaced with several successors that, likewise, would have their mortgage-backed securities guaranteed by the government in exchange for a fee. A federal guarantee, by reducing the risk to investors, can make it cheaper for firms to raise money for making home loans, in turn reducing mortgage rates.

A spokesperson for the White House told the newspaper that the President had not signed off on any of the proposals, and that economic advisers are simply starting a due diligence process in making a recommendation to Obama.

This news comes as Fannie Mae and Freddie Mac are falling under the microscope here in Michigan because of a series of reports in the Detroit Free Press. Leaders in the fight against foreclosures responded angrily on Monday to the initial report which showed while Fannie Mae claimed to Congress it was doing everything in its power to prevent foreclosure, internal documents from the mortgage giant instead showed the company was directing banks to foreclosure or face penalties — even on homeowners in the process of negotiating modifications on their loans.