The White House has failed to address the problems of government-controlled mortgage agencies Fannie Mae and Freddie Mac, says Phillip Swagel, assistant Treasury secretary under President George W. Bush.

“The Obama administration knows that the GSEs [government sponsored enterprises – Fannie and Freddie] are a huge issue. They’ve done nothing,” the Milken Institute senior fellow tells Yahoo.

The White House has issued a report outlining the options for dealing with the mortgage agencies. “But they haven’t come forward and said here’s what we think should be done. . . . They’ve dropped the ball,” Swagel says.
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The answer is to rely more on the private sector, Swagel says. That’s the best way to ensure that Americans in the future have access to affordable mortgages.

President Barack Obama (Getty Images photo)

“There’s a balance between government involvement to stabilize the market and private incentives that will best allocate capital,” he says.

“We want the private sector to screen mortgages. There has to be a government backstop, but behind very substantial private capital.” That way if there’s another housing downturn, private capital would absorb the losses, Swagel says.

Meanwhile, Georgia Republican Sen. Johnny Isakson, a former realtor, is introducing a bill that would create a government-owned corporation to replace Fannie and Freddie, The Wall Street Journal reports. That new entity could eventually be sold off to the private sector.

But Congress is unlikely to deal with Fannie and Freddie before next year’s elections.