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Fannie and Freddie buy mortgages and package them into securities with a guarantee against default. They have ensured that millions of Americans can get home loans
-- even after the housing market collapsed. The two mortgage giants, the Federal Housing Administration and the Veterans Administration together backed about 90 percent of loans made in the first half of the year, according to trade publication Inside Mortgage Finance. At some point the government will have to scale back the level of support it provided the housing and mortgage markets during the recession and financial crisis. "The government's footprint in the housing market needs to be smaller than it is today," Shaun Donovan, President Barack Obama's housing secretary, said in prepared remarks.
Most of the plans being circulated to reshape the mortgage market call for the government to guarantee that investors who buy mortgage-backed securities receive their money even if borrowers default. Under this system, Fannie and Freddie could either be returned to private ownership or phased out completely. Fannie and Freddie, or their replacements, would pay the government to insure the loans. That money could be tapped if the housing market collapses. "A government guarantee is both a desirable and necessary component of the country's housing finance system," wrote John Gibbons, a Wells Fargo & Co. executive vice president, in a letter last month to the Treasury Department.
[Associated
Press;
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