Republicans and Democrats both agree that the government's mortgage giants Fannie Mae and Freddie Mac can't continue in their current form, but various influential interest groups are decidedly not on board with proposals to dismantle the companies.
Fannie and Freddie were taken over by the government in 2008. Now the Washington Post reports that Democrats and Republicans "agree that the companies should be left to die and that their support for the housing market should wither away."
A variety of industry groups are concerned that dissolving Fannie and Freddie could make an already fragile housing market -- with an ongoing foreclosure crisis and increased likelihood of a housing "double-dip" -- even worse. The Washington Post catalogs the dissatisfied parties:
Some business groups, such as small banks and credit unions, are worried that the demise of Fannie and Freddie would allow large financial firms to dominate the mortgage market. Realtors and home builders are reluctant to part with the federal subsidy for housing provided by Fannie and Freddie. Consumer groups are wary of eliminating the firms because of the role they play in helping lower- and moderate-income homebuyers get access to mortgages.
The National Association of Realtors is circulating a list of "message points" coming down hard on the proposition of shutting down Fannie and Freddie. The opening point:
"The Obama Administration and some members of Congress want to turn the clock back on the housing market to the 1930s, turning us into a nation of renters and making home ownership something that only the rich can afford."
They also include 4 bullet points detailing what they believe the consequences of GSE -- government sponsored entities -- reform will be:
- reduce housing access and affordability for those who are willing and able become home owners
- create higher profits for America's big banks
- create more "too big to fail" banks, leading to greater consumer risk and taxpayer exposure
- hurt the economy and hinder job creation and growth
"These groups have considerable political clout and will make it difficult to get Congress to act on housing finance reform," Jaret Seiberg, an analyst with MF Global told the Washington Post "Legislation to cut back the government's role in housing finance will result in higher mortgage rates and downward pressure on home values. That is a tough vote for many lawmakers, regardless of their party affiliation."
Naked Capitalism, meanwhile, sees the administration's attempts at GSE reform as "an effort to institutionalize even bigger subsidies to the mortgage industrial complex."
The Obama administration's official proposal for reform will be released Friday. About this forthcoming proposal, Naked Capitalism writes:
It's as if a population suffering from a toxic reaction to mustard was now offered options ranging from Dijon to pommery to spicy brown as meaningful improvements. And this is not an exaggeration.
And adds:
We've managed to skip over the real elephant in the room, the ongoing fraud in courtrooms all over the US to deal with the breakdown of procedures and documentation. How can we talk about monster subsidies to a sector rife with consumer abuse and probable criminal activity without having a real investigation and cleanup first? That's putting the cart before the horse in a very serious way. And that's by design,