U.S. set to overhaul mortgage market

WASHINGTON, Aug. 7 (UPI) -- The White House and Congress are set to overhaul the $12 trillion U.S. mortgage market and decide the fate of Fannie Mae and Freddie Mac, observers say.

The effort has sparked debate along party lines over how much the federal government should support home ownership, The Washington Post reported.

Fannie and Freddie, which guarantee nearly all new home mortgages, were bailed out by the federal government for $160 billion amid the mortgage crisis.

Affordable housing advocates want the government to offer more support for rental housing rather than pushing for home ownership for low-income people

But Republicans have proposed legislation to shut down Fannie and Freddie and some want no government support for housing. They say the government push for home ownership led to banks' approving risky loans to borrowers with poor credit.

The Obama administration must craft a proposal by January, as part of recently passed legislation designed to overhaul financial regulation.

"What I'm afraid of is that people on either side of the aisle will potentially play politics and point fingers," said Michael Berman, incoming chairman of the Mortgage Bankers Association. "There's some folks that are so afraid of having any government involvement at all because of the losses we've had."

Housing companies and consumer advocates appear to be reaching some consensus, however.

Under one scenario, Fannie and Freddie or similar companies would be retained. They would offer a government-backed guarantee to investors in mortgage loans. A fee charged to mortgage loan originators would cover bad loans.

"I don't think we could possibly contemplate what it would be like to start without Fannie and Freddie in the picture," Tom Deutsch, executive director of the American Securitization Forum, which represents many Wall Street firms, told the Post. "They can't disappear overnight."