I have no idea where President Obama is coming from, but getting rid of Fannie and Freddie is a truly idiotic move, in the same way getting rid of Glass-Steagall was for former President Clinton.
Fannie and Freddie are backstops to business cycles in the housing industry; if you get rid of them, the swings of the housing market will be wider, not narrower. The worst part of his idea is to rely on the securitization (i.e. the REAL reason why we had a mortgage and housing bubble) of mortgages.
Did we not learn anything about Republicans in Congress, these past several years? Not only are they willing to eliminate Freddie and Fannie, but they're also going to inevitably deregulate the housing / mortgage markets altogether, eliminating oversight of the securitization process. When the Franken Amendment to Dodd-Frank passed, it did so with 4/5ths of Republicans voting against ending the pay-to-play scheme of the ratings agencies, whose role in giving rosy ratings to securitized mortgages was central to the bubble explosion.
And anyway, they'll have repaid their entire bailout to the government by the end of this year, and start making tons of money for the government. Why would you destroy a massive money-maker, just as it is coming back?
The only thing that needs tossing out, is Edward DeMarco, the guy in charge at Freddie, who gave a poor excuse of why Freddie couldn't mark down mortgages to market value, thus reducing debt overhang and bringing homeowners back from the brink of solvency.
Once the bailout has been paid back in full, instead of winding them down, the government should simply release Fannie and Freddie back to the market place with stricter rules requiring separate ratings of securitized mortgages that it purchases.
Update: I couldn't believe when I read that Obama thinks that, by privatization of mortgages, they'll be able to clear out the underwater mortgages faster. Looking back at the last three years, you'd have to be a fool to believe that banks were quick to mark down mortgages to market value and clear out underwater mortgages. The criticism is all about Ed DeMarco's unwillingness to mark down mortgages, but like I said, just get rid of him and the problem is solved.
Obama says that privatization will push risks onto investors. Lemme tell you, banks and their investors don't take your risk; they raise your costs to pay for insurance (both mortgage insurance and credit default swaps) against your risk, or they simply refuse to loan money to you. This is going to be very bad for the middle and lower-middle income folks, and everyone else with existing mortgages, as fees will shoot up.
TBNT.
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