Obama Faces Battle Over GSEs

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WASHINGTON-While reforming the government-sponsored enterprises was always going to be a hard battle for the Obama administration, its job will be even tougher now.

So far, the only part of President Barack Obama's plan that is clear is that he wants to preserve some government guarantee of the mortgage market. But top Republicans on the House Financial Services Committee have already said they oppose that concept.

"It's safe to say we are going to have an ideological showdown if Republicans take the House," said Howard Glaser, a former Department of Housing and Urban Development official who now runs his own consulting firm. "The administration may need to rethink that calculus if Republicans are going to be successful because anything the administration is going to put forward is sure to be viciously attacked by Republicans favoring pristine privatization."

Getting over that threshold question of government support will be difficult, observers said. "This issue of a government guarantee will be front and center and a big hurdle to overcome," said William Longbrake, the executive in residence at the University of Maryland's Smith School of Business and a former vice chairman at Washington Mutual Inc. "The Republican Party line is they will prefer a private solution."

The administration is required under the Dodd-Frank Act to put forward a plan for the future of housing finance that will include how to deal with Fannie Mae and Freddie Mac, which were taken into conservatorship in September 2008.

While the Treasury Department has remained relatively silent on what it is planning, pledging only to deliver a plan by January, the Republicans have already introduced a bill. The GSE Bailout Elimination and Taxpayer Protection Act would essentially eliminate Fannie and Freddie by gradually phasing out the GSEs' portfolios and increasing their capital.

Democrats, in contrast, have delayed the release of any plan, arguing that other priorities like regulatory reform needed to be enacted first and fearful that any proposal could disrupt the still-fragile housing market. The only hint has come from Treasury Secretary Tim Geithner, who signaled that the administration still plans to include some kind of government role in the market.

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