WASHINGTON—The Obama administration unveiled a proposal Friday for winding down mortgage giants Fannie Mae and Freddie Mac, spelling out three options for what could take their place and setting the stage for a debate over the nation's $10.6 trillion mortgage market.
The steps, outlined in a "white paper," are likely to mean higher borrowing costs and more-limited access to home loans for consumers. Treasury Secretary Timothy Geithner said establishing a new system could take five to seven years.
"This is a plan for fundamental reform of the housing market," Mr. Geithner said, cautioning that "we're going to proceed on this path of reform very carefully."
All of the administration's proposals envision a scaled-back role for the government, and officials emphasized the goal of restoring the market for mortgage-backed securities issued without the government's guarantee.
The initial reaction on Capitol Hill was positive. Rep. Scott Garrett, (R., N.J.), a frequent critic of the administration, said, "I'm encouraged to see the administration included a number of reform ideas that track closely with my own."
One option proposed by the administration includes a new government backstop of certain mortgages under a federal 'reinsurance' model, while another would proposes a more limited backstop that would scale up primarily during times of economic crisis. The third option proposes no such government backstop beyond existing federal agencies such as the Federal Housing
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