The government appears bent on sticking to its previously announced schedule for reforming the housing market mortgage finance machinery, which calls for the end of Fannie Mae and Freddie Mac in their current form.

Recall that in a white paper, the Treasury Department laid out some options, which include replacing the two GSEs with a new system that provide reinsurance to private mortgage guarantors, setting up a private system that allow for government guarantees on a limited basis, and offering government guarantees only in times of crisis.

As of now, we’re not sure where this is heading, but one would have to think that the government will remain wary of doing anything that might unduly depress the market even more at a time when the economy needs a goose. For smaller banks and credit union, this uncertainty is not comfortable, which is why they are taking steps to set up their own new systems, notes the Washington Post.

Some are talking about setting up a credit union servicing organization, which would essentially allow institutions to pool together to drive down risks. Others are considering a cooperative structure modeled on the Federal Home Loan Banks. But they all yearn for continued government involvement because in the end that’s how the market drives confidence, which results in lower costs. My sense is that we’ll end up with a system of strong government participation.

For more:
-here’s the Post article

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