The administration of American president Barack Obama today moved to abolish Freddie Mac and Fannie Mae, the gigantic state enterprises that helped channel unsustainable sums of money into housing before the credit crunch.
The Obama administration outlined proposals in a white paper released today that aims to reform America’s housing finance market.
These include the abolition of the two government-sponsored enterprises, too-big-to-fail financial institutions were designed to lubricate America’s mortgage market.
The enterprises helped fulfill one of America’s key bipartisan political initiatives before the credit crunch – promoting home ownership.
The new Obama plan still commits to helping Americans with choices in the rental market and gain access to the credit required to buy a home.
But the white paper proposes that, overall, the government should aim to reduce its involvement in the housing market.
The white paper identifies a number of flaws in the previous system of encouraging real estate investment over and above other sectors of the economy.
Among these was the fact that taxpayers sponsored Freddie Mac and Fannie Mae and became responsible for their enormous liabilities. (article continues below)
However, even after the credit crunch, Fannie Mae and Freddie Mac together support 90% of the American mortgage market.
The white paper itself notes the fragile state of the American housing market and cautions that any reforms are to be implemented at a stable and measured pace to support the economic recovery over the coming years.