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Lawmakers have again set their sights on mortgage giants ""Fannie Mae"":http://www.fanniemae.com and ""Freddie Mac"":http://freddiemac.com. The House Financial Services Committee convened a hearing Tuesday to[IMAGE]discuss the future of housing finance in general and the GSEs in particular â€" it's the first step in a legislative process that could turn the mortgage industry on its ear and the beginnings of a long debate that will undoubtedly become more and more heated in the months ahead.
Together, Fannie Mae and Freddie Mac guarantee nearly half of all outstanding mortgages in the United States, and they've been fundamental and deep-seated cogs in the administration's war on foreclosure, with the government relying heavily on the two companies to implement and administer its Making Home Affordable program.
They are the very epitome of ""too big to fail,"" and indeed when the housing market came tumbling down and Fannie and Freddie were on the brink of collapse themselves, the government immediately stepped in back in September 2008 to prop them up, funneling more than $125 billion of taxpayer dollars into the two mortgage financiers to cover their losses and resuscitate American housing.
It's now been more than a year and a half that Fannie and Freddie have been in conservatorship, and although the nation's housing recovery is still fragile at best, the burning question on everyone's tongue is, ""What do we do with them now?""
Treasury Secretary Timothy Geithner assured the House committee Tuesday that it would not be a return to
[COLUMN_BREAK]business as usual, and although up until now, Geithner, and even President Obama, have sidestepped the issue â€" only saying not to expect a blueprint for the GSEs' future until well into next year â€" Geithner told House lawmakers that it is now time to ""begin the process of fundamental reassessment and reform.""
""Geithner said in prepared testimony"":http://www.treasury.gov/press/releases/tg603.htm, ""After reform, the [GSEs] will not exist in the same form as they did in the past. Private gains will no longer be subsidized by public losses, capital and underwriting standards will be appropriate, consumer protection will be strengthened, and excessive risk-taking will be restrained.""
According to Geithner, the performance of Fannie and Freddie was symptomatic of the system's larger regulatory and oversight failure and far-reaching structural flaws. Unlike some high-profile policymakers, Geithner says the two mortgage lenders shouldn't be abolished, but agrees that a full overhaul is needed. He is advocating a transition plan that will allow private capital to return to the marketplace, while maintaining the extensive infrastructure, knowledge, personnel, and systems of Fannie Mae and Freddie Mac.
Geithner told the committee that the administration will put forth a ""list of questions"" in order to provide a framework for developing a solution for the GSEs' future. This questionnaire will be made available for public comment by April 15, 2010, and will seek input from market participants, academia, and consumer and community organizations on how best to re-engineer not only Fannie and Freddie, but the nation's housing finance system as a whole. Geithner says these comments will help shape the administration's proposal, and assured the committee that he would work closely with Congress to finalize a comprehensive, bipartisan reform plan.
The bipartisan piece of that may be hard to come by. Republican lawmakers have repeatedly placed the blame for the housing bubble squarely at Fannie and Freddie's feet. Just last week, House Republicans, led by Financial Services Committee Ranking Member Spencer Bachus (R-Alabama), put forth ""their own GSE blueprint"":http://republicans.financialservices.house.gov/index.php?option=com_content&task=view&id=1091&Itemid=43, which calls for the complete phasing out of Fannie Mae and Freddie Mac over the next four years.
