One of the nation's most visible and vocal lawmakers has cast some doubt on the safety of doing business with the nation's two largest mortgage financiers, ""Fannie Mae"":http://www.fanniemae.com and ""Freddie Mac"":http://www.freddiemac.com.
[IMAGE]Rep. Barney Frank (D-Massachusetts), chairman of the House Financial Services Committee, ""issued a public statement"":http://www.house.gov/apps/list/press/financialsvcs_dem/pr_030510.shtml Friday which essentially warns investors that have lent money to the two GSEs and those that have purchased their mortgage-backed securities (MBS) to expect to incur some losses.
""Throughout the debate over Fannie and Freddie in past years, I have noted that Fannie and Freddie debt did not have the same legal standing as Treasury debt,"" Frank said, meaning it shouldn't be thought of as risk-free or considered the same as lending to the federal government itself.
[COLUMN_BREAK]Since the two mortgage giants were place in conservatorship two years ago, the Treasury has implied to market participants that any debt issued by the GSEs has the full backing of the U.S. government, and last December Treasury officials announced that they were pledging ""unlimited support"" to Fannie and Freddie.
Frank noted that the Treasury is treating the debt of the two companies in the manner that it believes best supports the overarching goal of stabilizing the financial system.
""I support the intention of the Treasury to stand fully behind the terms of its December 24 statement with regard to Fannie and Freddie debt,"" Frank said, but he added, ""the case in going forward, as we restructure housing finance, we will make sure that there are no implicit guarantees, hints, suggestions, or winks and nods. We will be explicit about what is and is not an obligation of the federal government.""
Frank's committee is expected to hold hearings later this month to address the future of housing finance and the government's role in supporting Fannie and Freddie. ""In January, Frank said"":http://dsnews.comarticles/house-leader-pushes-for-gses-end-2010-01-25 he favors abolishing the two GSEs altogether and rebuilding the nation's housing finance system from ground zero.
The House leader told the _Washington Post_ this week that he would ""absolutely"" consider requiring investors in the two companies to take some losses themselves.