Reforming Fannie Mae and Freddie Mac

The death of Fannie Mae and Freddie Mac has been a long time in the making. For the past four decades the way homes have been financed in this country has been dictated by a kind of public-private partnership. Fannie and Freddie bought mortgages from banks and sold them to investors in the form of securities. The system worked because the government implied that if homeowners defaulted, the government would be there to bail those loans out. In 2008 the government essentially did that during the housing crisis. But now the two companies are political untouchable.

What will replace Fannie and Freddie and how will the changes affect the housing market? The White House will announce some possible proposals as early as today. Louise Story says, however, that the Obama administration will very likely leave it up to Congress to decide on which proposal to adopt.