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So, what would happen to the mortgages currently held by these companies?
CG: I'm both shocked that Barney Frank is behind this and scared as to what he thinks should replace them.
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WASHINGTON – A top lawmaker on Capitol Hill is calling for the elimination of mortgage finance companies Fannie Mae and Freddie Mac and the establishment of a new system to provide money for U.S. home loans.
Rep. Barney Frank, D-Mass., the chairman of the House Financial Services Committee, said Friday he supports replacing the two companies entirely.
"I believe this committee will be recommending abolishing Fannie Mae and Freddie Mac in their current form and coming up with a whole new system of housing finance," Frank said at a hearing on executive compensation issues. "That's the approach, rather than the piecemeal one."
His comments show how much the financial crisis has upended the relationship between lawmakers and the two companies. Frank was long one of the staunchest supporters of Washington-based Fannie Mae and Freddie Mac, based in McLean, Va.
The two companies, which have been run by the government since they almost collapsed in September 2008, have required $111 billion in federal aid to stay afloat. Late last year the Obama administration pledged to cover unlimited losses through 2012 for both companies, lifting an earlier cap of $400 billion.
Regulators announced last month the CEOs of Fannie and Freddie could get paid as much as $6 million for 2009. That has outraged Republican lawmakers on Capitol Hill.
"We are paying these people bonuses to lose tens of billions of dollars," said Rep. Jeb Hensarling, R-Texas at Friday's hearing. "What people do with their money is their business. What they do with the taxpayer money is our business."
Fannie Mae and Freddie Mac provide vital cash to the mortgage industry by purchasing home loans from lenders and selling them to investors. Together, they own or guarantee almost 31 million home loans worth about $5.5 trillion, or about half of all mortgages in the U.S.
So far, the Obama administration has been quiet about its plans for the two companies. In an interview Thursday on PBS, Treasury Secretary Timothy Geithner said the Obama administration will "propose a set of detailed reforms beginning this year" for Fannie and Freddie. But he said legislation will have to wait until next year "because it's just a complicated thing to get right."
Shares of both companies sank on the news. Fannie Mae closed at 99 cents, down 7.5 percent. Shares of Freddie Mac closed at $1.17, down 10.7 percent, but added a penny in after-hours trading.
http://news.yahoo.com/s/ap/20100122/...iants_congress
So, what would happen to the mortgages currently held by these companies?
A GSE isn't supposed to be government-guaranteed, but nobody would invest if it wasn't.
It is shocking, CG.
Hopefully, there is no replacement for Fannie and Freddie.
Though as a practical matter, I do see the problem with abolishing the GSEs representing one-half the mortgage market.
They should have never been created in the first place.
Let them mature and don't take new ones.
So who would service them, etc. until maturity?
I'd assume they'd be sold/transferred to whatever government agency/program takes fannie & freddie's place. And there would have to be one. I certainly don't see a scenario where Obama & the dems would want to decrease government's role in the mortgage industry. Even if they did I can't see a scenario where there would be enough private investors out there to absorb fannie and freddie's portfolio. Realistically, this is probably just Barney Frank trying to cover his tracks considering the significant role he played in F&F's demise. So he calls to get rid of F&F knowing full well that it's either not going to happen, but he's got his soundbite to use come election time, or that Obama & the rest of the dems get behind it and replace F&F with some new goverment program that does the same thing.
Thanks, CG. I agree that [B]something[B] has to replace them (as opposed to mogrovejo's implication that the mortgages would just disappear upon maturity). I also agree that no private investors would want to touch them with a ten foot poll. So I guess my next question is, what would be accomplished by starting up a third federally backed agency to replace these two? Would the treasury then just write down all the bad debt they are sitting on? Wouldn't that be the only way to give a new en y a chance of surviving in this market? And if you were gonna do that, why wouldn't you just write down the bad debt now and merge the two remnants? Do you think that is actually what they are planning?
What I don't think they are planning is any kind of meaningful or significant reform in how F&F work. Under any plausible scenario that I can think of the government still ends up being heavily involved, and the taxpayers still end up being the ones on the hook for F&F's bad debts. So in that sense it really doesn't matter if they do take Fannie Mae and Freddie Mac and roll them into some new program and call it Frannie Moe. The end result is the same. All that gets accomplished is that some politicians scared of voter backlash get to tell their cons uents that they "did something". Freddie & Fannie are symbols of the financial crisis, along with Geitner and Bernake, and in the Massachusetts aftermath we're seeing more and more politicians up for re-election in 2010 looking to distance themselves from those symbols.
I don't know, for all I care they can keep F&F open for the next 30 years. Ideally I guess they'd merge them into a much smaller agency - I suppose 10 full-time employers would suffice to get the job done.
What's important is to not replace them with anything when it comes to future mortgages. I have no idea why are politicians allowed to invest other people's money in the secondary market. How much billions has this nonsense costed just in the last year or so? If you or someone else wants to invest your money in re-financing residential mortgages, you can do it through your bank.
When Barney Frank says to run left... you ing stampede to the right as quickly as you can...
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