The mortgage twins have a big decision coming up. Freddie Mac and Fannie Mae will soon learn whether they will be living in government housing or moving into the suburbs.
The battle over control over the housing financial market is heating up in Washington DC with government officials trying to decide whether to Federalize the lending giants or privatize them. And the decision is not an easy one.
If they privatize there is the risk of another failure. As a private or public company investors will seek returns on their investments. There will be risks made to maximize the return on investment.
If the government assumes control and continues to back the debt, the stability of the program increases. But the social tinkering aspect that got us into this mess will also be magnified. When there was Congressional oversight and a Board of Directors full of government hacks, the lending formulas got so twisted that instead of making prudent loans we got social change.
We all know where that got us.
So where do you fall on the debate? A private company with a greater risk of failure or a government backed concern that will make loans that have political implications?
The hearing comes as Congress turns up the pressure on the administration to discuss how it plans to rebuild the mortgage market, the recipient of massive government support since the credit crunch began more than two years ago. “We need people to start focusing on it. Nobody was coming up doing the hard thinking,” said Rep. Barney Frank (D., Mass.), who said he called the hearing to accelerate debate on the future of Fannie and Freddie.
The government took control of Fannie and Freddie through a legal process known as conservatorship 18 months ago. It has injected $127 billion to keep the companies afloat and pledged unlimited bailout aid over the next three years. In testimony, Mr. Geithner will defend the administration’s actions to shore up the companies as “unfortunate and undesirable” but nevertheless necessary to offset a “much more wrenching decline in housing prices.”
Republicans, meanwhile, are renewing calls for the government to move toward privatizing the companies. Their proposal calls for a housing-finance system “in which private capital is the primary source of mortgage financing” and recommends winding down the current operations of Fannie and Freddie over the next four years. Fannie and Freddie, together with the Federal Housing Administration, now back more than 9 in 10 home loans. via WSJ
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