Fannie Mae and Freddie Mac should eventually be abolished and the government should cut back its role in the housing market while financial institutions should hold more capital.
Those are among the recommendations of a report issued today by the U.S. Treasury Department and the Department of Housing and Urban Affairs.
The government's main role should be limited to "robust'' oversight, protecting consumers and targeted help for low- and moderate-income Americans and "carefully designed'' market support.
In addition, under the administration's plan "banks and other financial institutions will be required to hold more capital to withstand future recessions or significant declines in home prices, and adhere to more conservative underwriting standards,'' the report said.
The government should require increased guarantee fee pricing and larger down payments, the report added.
The report outlines three policy options: reducing the government's role in insuring and guaranteeing mortgages, keeping the government as a backstop credit source during difficult economic times and offering government insurance for certain mortgage-backed securities.
NAFCU President Fred Becker said in a statement that his association believes that "any reform must not upset this fragile recovery. Any disruption could trigger a 'double-dip' recession and could have a devastating impact on the country's economy as well as the global financial system.''