From the WSJ:
All year long, the Obama administration has defended its decision to postpone the debate over the fate of Fannie Mae and Freddie Mac by arguing that it first needed to put the housing market back on track.
Now, as mortgage-industry executives and government officials prepare to meet for a summit on Tuesday to begin those discussions in earnest, policy makers are facing an unexpected problem: The housing market appears to be stalling.
That will make officials more cautious in considering any dramatic overhaul, because a shaky outlook further underscores the market’s heavy dependence on Fannie and Freddie, which together with the Federal Housing Administration are backstopping nine out of every 10 new loans.
“It pulls the debate in the opposite direction,” said Howard Glaser, an industry consultant. “If we’re stuck in the midst of this semi-permanent housing crisis, the question of the federal role becomes almost intractable.”
“There’s been a feeling in government, which seems to be more pervasive than it was six months ago, that says, ‘We’ve solved this housing problem; let’s move on to Fannie and Freddie,'” said Laurie Goodman, a senior managing director at mortgage-bond trader Amherst Securities Group LP in New York. “But you haven’t solved this housing problem. We have another round of home prices going down a little more.”
Already, administration officials have said the previous ownership model for Fannie and Freddie should be discarded. For decades, a fuzzy “implied” guarantee allowed the companies, owned by private shareholders, to borrow cheaply because investors assumed that the government would rescue the firms at the first whiff of trouble.
While the administration has promised to deliver “fundamental change,” officials are likely to proceed slowly—focusing as much attention on any transition as they do on the final destination—to avoid rattling the $5 trillion bond market for government-backed mortgages. “People who have big reform ideas and objectives and no way to get there, that’s not realistic,” the administration official said.