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Radical Options In Play for New Structure of Firms
Any plan requires the approval of Congress, where sharp disagreements over whether Fannie and Freddie's new structure could take most of next year to resolve, lawmakers say.
(By Jay Mallin -- Bloomberg News)
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If Congress were to nationalize the two firms, Fannie and Freddie would become government agencies. They could not raise money by selling stock to investors, nor would their shares be traded on the markets. Instead they would rely on public funding. The structure would be similar to Ginnie Mae, a government-owned corporation within the Department of Housing and Urban Development that backs mortgages from several agencies.
If the firms were privatized or liquidated, several large banks have said they are eager to compete in the business of buying loans from mortgage originators. Douglas J. Holtz-Eakin, senior policy adviser to McCain, and others say the private sector could replace Fannie and Freddie's role in the marketplace. Fannie and Freddie's mandate to provide money for affordable-housing loans could be taken up by an agency such as HUD, which already operates the Federal Housing Administration loan program.
Rep. Jeb Hensarling (R-Tex.), who has been one of the fiercest critics of the GSEs, or government-sponsored enterprises, on Capitol Hill, said in an interview that Treasury's requirement for the companies to reduce their portfolios seems to be "a step in the right direction." But, he added, "ultimately the GSEs need to be totally privatized."
Democrats, for their part, say the Treasury's takeover demonstrates that the company's public mission is vital and needs to be preserved. "Most Democrats believe Fannie and Freddie need restructuring," Schumer said, "but their overall mission to help ensure affordable housing must remain intact."
Jason Furman, Obama's economic policy director, warned that some of the GOP positions would do more harm than good. "This is a complex problem that doesn't lend itself to a simplistic ideological solution," he said. "The root of solving it is how to disentangle the public functions . . . from the things that the private sector can and should be doing."
Staff writer Lori Montgomery contributed to this report.
