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Plans Near For Freddie And Fannie

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The Obama administration and House Republicans are settling into a game of chicken over Fannie Mae and Freddie Mac, with each side daring the other to advance a plan for replacing the two housing finance companies.

The White House missed a deadline at the end of January for telling Congress what it wants to do. That report will be released as early as Friday, people with knowledge of its contents said, but it will present a range of options without stating a preference.

One possibility favored by some of President Obama’s economic advisers, and by many Republicans, would not create any federal replacement for Fannie and Freddie, leaving the private markets to provide mortgages for most Americans. The alternative approaches instead would continue some form of federal mortgage backstop.

The report will describe a plan for winding down the two companies, which were taken over by the government in 2008. Initial steps will include preventing the companies from buying loans larger than $625,500, and increasing the fees they charge for loan guarantees, according to officials who spoke on condition of anonymity so as not to pre-empt the official release.

The report will describe reforms in other areas of the mortgage business, including enhanced borrower protections, changes in mortgage servicing to address the industry’s failure to work with borrowers who fall behind on payments, and new steps to clean up loan securitization, the bundling of loans for sale to investors.

House Republicans, meanwhile, outlined a plan last year to end government ownership of the two companies, and campaigned on the issue in the fall. But they have since adopted a more cautious posture. Instead of pushing forward with legislation, they have scheduled a hearing for Wednesday to weigh alternatives.

The diminished urgency on both sides reflects the political realities of power-sharing, the fear of doing further damage to housing prices, and a great deal of uncertainty about the best approach to rebuilding the mortgage business.

“Industry-defining legislation often takes more than one Congress to pass,” said Peter Swire, who served until August as a special assistant to President Obama on housing finance issues. “I think everyone wants a bigger role for private-sector housing finance going forward, and how to do that transition is just a big job.”

Excellent no one wants the blame for making things worse. Its going to be a classic political fudge, which will of course make things worse.

Allowing the markets to set the rates will mean house prices come down.

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