Is It Farewell for Fannie and Freddie?

You won't have Fannie Mae and Freddie Mac to kick around anymore, at least if Rep. Barney Frank has anything to say about it.

As chairman of the House Financial Services Committee, Frank is certainly in a position to influence the decision about what will happen to these two mortgage companies now under conservatorship with the U.S. government. And a dramatic change in the roles of Fannie and Freddie is something that even Republicans agree with.But don't expect a decision any time soon. The Obama Administration may chime in when the President releases his budget next month. But just last Thursday, Treasury Secretary Timothy Geithner indicated that any overhaul of Fannie and Freddie will not even begin this year. We're entering into the political season when very little gets done in Congress, thanks to the upcoming elections in November. Politics will take precedence over any major decision making.

Republicans want Fannie and Freddie to become smaller, private companies that would fund mortgages but no longer live under the auspices of the government. Some analysts have taken the opposite approach, arguing that Fannie and Freddie should become one government agency whose goal is to support the US housing marketplace.

If I were a betting woman, I'd say it's more likely that Fannie and Freddie will be melded into one government agency with the goal of maintaining a health housing market than alternative of making them private entities. Barney Frank is even hinting at that when he suggests that we need to come up with an entirely new system of housing finance.

But what will happen to the mortgages now held or guaranteed by Fannie and Freddie? On Christmas Eve, the Obama Administration pledged support for Fannie and Freddie for another three to five years. The Administration also announced that they were going to allow the two agencies to build their portfolios of mortgage assets to $900 billion each, which is about $150 billion more than they currently each hold. That, to me, is a clear signal Fannie and Freddie aren't going anywhere anytime soon.

So don't worry. The two agencies will be around to support the mortgage market for years to come.
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