On Wednesday, Republicans announced a plan to wind down bailed-out mortgage-financing giants, Fannie Mae and Freddie Mac. This proposal has the potential to create some political headaches for Democrats and the Obama administration which have bet heavily on the companies’ futures.
Republicans submitted the measure as an amendment to the financial-regulatory bill in the Senate. It outlines steps to get rid of Fannie and Freddie during the next five years. However, the proposal neglects to include an alternative to replace the two mammoth organizations which is no small detail.
Last quarter, Fannie and Freddie funded two-thirds of all U.S. home loans. Added to the loan volume of the Federal Housing Administration, the government backed a total of 96.5% of the country’s loans. If shut down, Fannie and Freddie would transfer their burden to the FHA, an organization with much more lax standards and even fewer resources to deal with the added volume.