The House Capital Markets Subcommittee held a hearing on Wednesday on reforming Fannie Mae and Freddie Mac. Testimony came from representatives of three conservative "think tanks" and a single progressive one. The first three speakers presented outlines for reform that had the common theme of privatization and many similar specifics. The fourth advocated for continued government involvement and devoted much of her testimony to contradicting premises of her fellow panelists.
One invitable element of this transition should be a gradual step-wise reduction in the maximum loan limits for the GSEs and FHA. This would shift higher mortgage costs as well as the reduction in potential tax burden to higher income households. The current "jumbo" loan market - loans above $729K - is approximately $90 billion. Reducing the loan limit to $500K would increase the size of the jumbo market to around $180 billion, an amount that insured depositories with excess reserves of over $1 trillion and an aggregate equity to asset ratio of over 11 percent should have no trouble absorbing. Moving more of the mortgage sector to banks would also put some capital behind the market which at present does not exist. This step seems inevitable.
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Source: http://www.mortgagenewsdaily.com/02102011_housing_finance_reform.asp
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