Pete the Broker has it right on the Victoria Taft blog today:

The Obama Administration has given reform of Fannie Mae, Freddie Mac and the residential capital markets a relatively low priority on his political agenda. In the past year, Fannie Mae and Freddie Mac facing bankruptcy were forced into government conservatorship, have received some $96 Billion in direct capital infusions from the Treasury, have remained largely unprofitable while in concert with the Federal Housing Administration they have dominated residential mortgage originations and sales of Mortgage Backed Securities in the presently largely dysfunctional mortgage capital market.

In the absence of action by the Administration and Congress, the Mortgage Bankers Association presented its own preliminary proposal for reform recently. The proposal summarized in the accompanying Wall Street Journal article would,

1. Replace Fannie Mae and Freddie Mac with several smaller private companies (privately owned, government chartered and regulated).

2. Create a new class of Mortgage Backed Securities (pools of mortgages) with individual loans in this MBS pools guaranteed by the new private companies.

3. Establish government guarantees for the MBS pools which would insure investors against default, supported by payment of fees by new private firms into a federal insurance fund similar to the FDIC government insurance fund on bank accounts. John Courson, President and Chief Executive Officer of the MBA suggests government guarantees are necessary to restore and maintain investor confidence in MBS as well as provided renewed liquidity in the residential mortgage markets.

4. Create a new class of MBS which would contain only conventional or traditional mortgage products (Prime loans rather than sub prime, for example).

5. Replace Fannie Mae and Freddie Mac with a direct government agency that would handle financing in conjunction with government affordable housing policies.

Is this Mortgage Banker’s Association proposal, among other things recommending smaller private firms, sufficient to reform and improve the Mortgage Industry and Markets? Here’s some more food for thought here.