Ben Bernanke Prepares Fannie and Freddie's Last Rites

Ben Bernanke is gunning for Fannie Mae and Freddie Mac
Ben Bernanke is gunning for Fannie Mae and Freddie Mac

Many of us never expected Fannie Mae and Freddie Mac to emerge from conservatorship, but now the death knell has sounded. By January we should know at least how the Obama administration wants to reorganize government support for the mortgage market, which will include the fate of the government-sponsored entities -- Fannie Mae and Freddie Mac.

Bernanke let it be known that the "current situation is not sustainable" in recent testimony to the House of Representatives. He further reiterated that in a letter to Rep. Marcy Kaptur (D-Ohio). He wrote: "There are a variety of organizational forms that might replace Fannie Mae and Freddie Mac that could likely provide mortgage credit without the systemic risks associated with these institutions in the past." When he testified before the House, he discussed two possible forms emerging for mortgage financing: One would be private, with possibly a government-insured program, and the second would be "more like government utilities" that "provide services under full government control." He didn't go into further detail.

But Congress certainly is letting the administration know that major changes are needed for the $12-trillion U.S. mortgage market. Many Democrats, hearing from affordable housing advocates, want the government to minimize its efforts to encourage homeownership and instead shift priorities toward rental housing for low-income people.