It’s not just talk in Washington, the administration wants federal mortgage market reform and they want it now.  Here are some excepts from the 28 page paper that came out this month. Take some time andread the whole thing here. It’s an easy read and I’d love to hear your thought. Here are some quick excepts…

“The housing finance system must be reformed.  It is the vital link to sustainable homeownership

and rental options for millions of Americans,  and it is central to our nation’s economy.  We

allowed its flaws to go unchecked for too long, contributing to a financial collapse that has

strained families, decimated communities, and pushed the economy into the worst recession

since the Great Depression.  The Obama Administration here provides a path of reform, which

will lead to a future system with more private capital, better-aligned incentives, more oversight,

and less risk to the taxpayer – in short, to a healthier, more stable system of housing finance.”

The Obama Administration’s reform plan is designed to:

1. Pave the way for a robust private mortgage market by reducing government support for housing finance and winding down Fannie Mae and Freddie Mac on a responsible timeline.

2. Address fundamental flaws in the mortgage  market to protect borrowers, help ensure transparency for investors, and increase the role of private capital.

3. Target the government’s vital  support for affordable housing in a more effective and transparent manner.

Option 1: Privatized system of housing finance with the government insurance role limited to FHA, USDA and Department of Veterans’ Affairs’ assistance for narrowly targeted groups of borrower.

This option would dramatically reduce the government’s role in insuring or guaranteeing mortgages, limiting it to FHA and other programs targeted to creditworthy lower- and moderateincome borrowers.  While the government would continue to provide access for this targeted segment of borrowers, it would leave the vast majority of the mortgage market to the private sector.

Option 2: Privatized system of housing finance with assistance from FHA, USDA and Department of Veterans’ Affairs for narrowly targeted groups of borrowers and a guarantee mechanism to scale up during times of crisis.

As in the option above, FHA and other narrowly targeted programs would provide access to mortgage credit for low- and moderate-income borrowers, but the government’s overall role in the housing finance system would be dramatically reduced.  In this option, however, the government would also develop a backstop mechanism to ensure access to credit during a housing crisis.

Option 3: Privatized system of housing finance with FHA, USDA and Department of Veterans’ Affairs assistance for low- and moderate-income borrowers and catastrophic reinsurance behind significant private capital.

Under this option, as in the previous options, the mortgage market outside of the FHA and other federal agency guarantee programs would be driven by private investment decisions with private capital taking the primary credit risk.  However, to increase the liquidity in the mortgage market and access to mortgages for creditworthy Americans – as well as to ensure the government’s ability to respond to future crises – the government would offer reinsurance for the securities of a targeted range of mortgage.