By REI Bulletin
The Future Of Freddie And Fannie
March 25th, 2010 | Fannie and Freddie
While Fannie Mae and Freddie Mac might seem like the ultimate in the “too big to fail” arena, next week lawmakers will be deciding their fates, and they could potentially be “reassessed and reformed,” according to Treasury Secretary Timothy Geithner, right out of their present forms entirely.
Presently, these two giants guarantee nearly half of the outstanding mortgages in the United States, and they have allowed the current administration to wage a war on foreclosures that otherwise would have been impossible had they had to deal with private lending bodies. However, now that the economy and the housing market appear to be stabilizing – albeit there are a lot of different opinions on that – lawmakers believe that the time has come to deal with these gigantic money-suckers (they have received $125 billion in tax-payer support thus far) in a more lasting fashion.
Geithner believes that the problems with Fannie and Freddie stem from a larger regulatory and oversight failure. I’ll buy that. However, he wants to stop short of getting rid of them entirely, but does want a “full overhaul” to allow private capital to return to the marketplace apparently under the oversight of “the extensive infrastructure, knowledge, personnel and systems of Fannie Mae and Freddie Mac.”
Of course, even if this sounds good to you, it is going to be a long time coming. Right now, they’re just working on a questionnaire for lawmakers, market participants, academic advisers and consumer and community organizations. Once the results are tallied, then the houses may try to take some action.
However, while the administration is asking questions, other lawmakers are making a move to phase out Fannie and Freddie entirely over the next four years. I’m not sure that’s a bad idea either. After all, it can be impractical to impossible to take money back from government institutions. Maybe it would be better to simply eliminate them and let the money “return to the market” in the form of tax payer dollars left with the tax payers.
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