Fed plan seeks to shrink Fannie, Freddie

The government regulator for Fannie Mae and Freddie Mac has submitted a plan to Congress that would shrink the mortgage giants' role in the housing market.

The Federal Housing Finance Agency's proposal for a leaner Fannie and Freddie was released Tuesday and would mean fewer mortgages are backed by the government. That could make buying a home more expensive because it would lead to higher interest rates.

Under the plan, Fannie and Freddie could also increase their prices to guarantee loans.

Fannie and Freddie buy mortgage loans from primary lenders, pool them, and sell them with a guarantee that investors will be paid even if borrowers default. The agencies have helped people buy homes at affordable interest rates.

The two nearly collapsed in 2008, after the subprime mortgage market foundered and defaults and foreclosures piled up. The government seized them in September 2008.

The bailouts of Fannie and Freddie have so far cost taxpayers roughly $150 billion, and that figure continues to grow. Some Republicans have called for the agencies to be abolished.

But there is a growing recognition that drastic action would upend the housing finance system, threatening the economy.