Written by Chris McLaughlin | 13 February 2011

The highly anticipated housing "white paper" on how to fix "fundamental flaws" in the mortgage market and reduce the government's role in housing finance by winding down Fannie Mae and Freddie Mac, was unveiled today. The two companies—known as government-sponsored enterprises, or GSEs—would be wound down gradually and replaced by private capital, under three possible scenarios sketched out in the White House's set of proposals:

- No government role, except for existing agencies like the Federal Housing Administration (FHA).

- A government role that explicitly guarantees mortgages only when the market is in trouble.

- A government role at all times, though not through government supported entities like Fannie and Freddie.

It outlines steps the administration says will help draw private capital back into the mortgage market, curb unfair lending practices and make federal support for borrowers more targeted. The paper recommends requiring Fannie Mae and Freddie Mac to price their loan guarantees to the same standards as private banks. It also says Congress should allow a temporary increase in those firms' conforming loan limits, which is the maximum size of a loan they can guarantee.

CLICK HERE TO READ THE "WHITE PAPER"

In addition, the plan calls for gradually increasing the size of down payments required for loans backed by Fannie and Freddie, shrinking their loan portfolios, and raising federal insurance premiums on mortgages. The paper also details steps to protect consumers from unfair mortgage practices and ensure that federal aid for low-income borrowers is more effective. The housing industry, including real estate agents, homebuilders and bankers support some government role for backstopping mortgages and have already started pushing back against some of the most aggressive privatization proposals.