20 August 2010
The US government is reforming the country's housing finance system, in an effort to reduce the risk of future crises. In particular, it will examine the two housing agencies known as Fannie Mae and Freddie Mac.
Click to hear the report:
Home loans were at the heart of the financial crisis and the subsequent bailout of the banks. President Obama's government has already pushed through congress an overhaul of regulation, but one important item was left out; what to do about the two key agencies in the mortgage market, known informally as Fannie Mae and Freddie Mac. They underpin the business by providing insurance to lenders against borrowers failing to repay and they also provide the funds by buying home loans from the original lenders.
But they lost money heavily as the housing market crashed and were rescued by the government. They were private companies, but all along the financial markets assumed they would be rescued if they got into trouble and that was a factor in the housing market bubble that led to the crisis - the decisive factor, according to some of their critics.
Now President Obama's Treasury Secretary, Tim Geithner, has two objectives that are not easily reconciled: enabling Americans to borrow the money they want to buy homes, without risking a need for future taxpayer rescues.
He says there is a case for some sort of government guarantees but he also wants fundamental change. He has now started a process that should lead to concrete proposals by early next year, with aim of making US housing finance less at risk from crises in the future.
Andrew Walker, BBC News, London
Click to hear the vocabulary:
something that happens after something else
(financial) rescue scheme
- overhaul of regulation
complete repair or improvement for the markets' controlling measures
money borrowed from a bank or financial institution to buy a house
- housing market bubble
a period of trading where property is bought and sold at prices above its actual value
- decisive factor
important point that determines a decision without any doubt
brought together or made compatible
basic and important